ABA Cost Accounting and Budgeting 3 — Questions and Answers
Question 1: A company has fixed costs of $120,000 and a contribution margin per unit of $30. What is the break-even point in units?
- 2,000 units
- 3,000 units
- 4,000 units (Correct answer)
- 5,000 units
Correct answer: 4,000 units
Break-even units = Fixed costs ÷ Contribution margin per unit = $120,000 ÷ $30 = 4,000 units.
Question 2: Under variable costing, which of the following is included in product cost?
- Fixed manufacturing overhead
- Variable selling expenses
- Variable manufacturing overhead (Correct answer)
- Fixed administrative expenses
Correct answer: Variable manufacturing overhead
Under variable (direct) costing, only variable manufacturing costs—direct materials, direct labor, and variable manufacturing overhead—are included in product cost.
Question 3: The difference between the static budget and the flexible budget at the actual level of activity is known as the:
- Sales volume variance (Correct answer)
- Spending variance
- Efficiency variance
- Mix variance
Correct answer: Sales volume variance
The sales volume variance (or activity variance) measures the effect of the difference between actual and budgeted activity levels on revenues and costs.
Question 4: Which of the following is an example of a committed fixed cost?
- Advertising expense
- Research and development costs
- Depreciation on factory building (Correct answer)
- Executive bonuses
Correct answer: Depreciation on factory building
Committed fixed costs arise from decisions about long-term investments, such as depreciation on buildings and equipment, which cannot easily be changed in the short run.
Question 5: In a process costing system, equivalent units of production are used to:
- Assign direct labor to individual jobs
- Allocate overhead using a predetermined rate
- Measure the productive output of partially completed units (Correct answer)
- Calculate the contribution margin per product line
Correct answer: Measure the productive output of partially completed units
Equivalent units convert work-in-process into a measure of fully completed units, enabling cost per unit calculations when production is partially complete.
Question 6: A favorable direct labor efficiency variance indicates that:
- Workers were paid less per hour than standard
- Fewer labor hours were used than the standard hours allowed (Correct answer)
- More units were produced than budgeted
- Overtime premiums were avoided
Correct answer: Fewer labor hours were used than the standard hours allowed
A favorable labor efficiency variance means actual hours worked were less than the standard hours allowed for actual production, indicating efficient use of labor.
Question 7: Which budget is used to plan for the acquisition of long-term assets such as equipment and facilities?
- Operating budget
- Cash budget
- Capital expenditure budget (Correct answer)
- Production budget
Correct answer: Capital expenditure budget
The capital expenditure budget plans for purchases of long-term assets and is a key component of the financial budget within the master budget.
ABA Cost Accounting and Budgeting 3
A company has fixed costs of $120,000 and a contribution margin per unit of $30.
What is the break-even point in units?