ABA Cost Accounting and Budgeting 2 — Questions and Answers
Question 1: A company uses activity-based costing (ABC). Which of the following best describes a cost driver in ABC?
- The total overhead allocated to all products
- A factor that causes costs to change in an activity cost pool (Correct answer)
- The fixed portion of manufacturing overhead
- The direct labor hours used in production
Correct answer: A factor that causes costs to change in an activity cost pool
A cost driver is a factor that causes the costs of an activity to change, and it is used to allocate costs from a cost pool to products or services.
Question 2: Under a flexible budget, if actual production exceeds the budgeted production level, what happens to the variable cost budget?
- It stays the same as the static budget
- It decreases proportionally
- It increases proportionally (Correct answer)
- It is eliminated entirely
Correct answer: It increases proportionally
Under a flexible budget, variable costs increase proportionally with production volume, so a higher output level results in a higher variable cost budget.
Question 3: Which costing method is most appropriate when products are unique and produced to customer specifications?
- Process costing
- Job order costing (Correct answer)
- Standard costing
- Throughput costing
Correct answer: Job order costing
Job order costing is used when products are custom-made or produced in distinct batches, allowing costs to be tracked per individual job.
Question 4: The contribution margin ratio is calculated as:
- Net income divided by total revenue
- Gross profit divided by total assets
- Contribution margin divided by total sales revenue (Correct answer)
- Fixed costs divided by total variable costs
Correct answer: Contribution margin divided by total sales revenue
The contribution margin ratio equals contribution margin (sales minus variable costs) divided by total sales revenue, expressing the percentage of each sales dollar available to cover fixed costs.
Question 5: A master budget typically begins with which of the following budgets?
- Production budget
- Cash budget
- Sales budget (Correct answer)
- Capital expenditure budget
Correct answer: Sales budget
The master budget starts with the sales budget because all other operating budgets—production, materials, labor—are driven by projected sales volume.
Question 6: In standard costing, a favorable direct materials price variance means:
- More materials were used than the standard quantity
- Materials were purchased at a lower price than the standard price (Correct answer)
- Less material was wasted during production
- Labor costs were lower than expected
Correct answer: Materials were purchased at a lower price than the standard price
A favorable direct materials price variance occurs when the actual purchase price of materials is less than the standard (budgeted) price per unit.
Question 7: Which of the following costs would be classified as a period cost under absorption costing?
- Direct materials
- Direct labor
- Factory overhead
- Selling and administrative expenses (Correct answer)
Correct answer: Selling and administrative expenses
Under absorption costing, selling and administrative expenses are period costs expensed in the period incurred, while manufacturing costs are inventoriable product costs.
ABA Cost Accounting and Budgeting 2
A company uses activity-based costing (ABC).
Which of the following best describes a cost driver in ABC?