ABA Managerial & Cost Accounting 2 — Questions and Answers
Question 1: A company uses activity-based costing (ABC). Which of the following is an activity cost driver for a machine setup activity?
- Number of machine hours
- Number of setups (Correct answer)
- Direct labor hours
- Units produced
Correct answer: Number of setups
In ABC, setup costs are driven by the number of setups performed, not by volume-based measures like machine or labor hours.
Question 2: Under variable costing, fixed manufacturing overhead is treated as a:
- Product cost inventoried until sold
- Period cost expensed in the current period (Correct answer)
- Selling expense allocated to units
- Deferred cost amortized over the asset life
Correct answer: Period cost expensed in the current period
Variable costing treats fixed manufacturing overhead as a period cost, expensing it in full in the period incurred rather than attaching it to inventory.
Question 3: The contribution margin ratio equals:
- Net income divided by sales
- Contribution margin divided by sales (Correct answer)
- Gross profit divided by sales
- Fixed costs divided by variable costs
Correct answer: Contribution margin divided by sales
The contribution margin ratio (CMR) is contribution margin (sales minus variable costs) divided by sales, showing the portion of each sales dollar available to cover fixed costs.
Question 4: When actual overhead exceeds applied overhead, the manufacturing overhead account has a:
- Credit balance indicating over-applied overhead
- Debit balance indicating under-applied overhead (Correct answer)
- Zero balance after proration
- Credit balance indicating under-applied overhead
Correct answer: Debit balance indicating under-applied overhead
A debit balance in manufacturing overhead means actual costs exceeded what was applied to production, resulting in under-applied overhead.
Question 5: In a standard cost system, a favorable direct labor efficiency variance results when:
- Actual hours worked exceed standard hours allowed
- Standard hours allowed exceed actual hours worked (Correct answer)
- Actual wage rate exceeds the standard rate
- Standard rate exceeds the actual wage rate
Correct answer: Standard hours allowed exceed actual hours worked
A favorable labor efficiency variance occurs when actual hours used are less than the standard hours allowed for actual output, meaning workers were more efficient than expected.
Question 6: Which costing method is most appropriate for a custom furniture manufacturer producing unique items per customer order?
- Process costing
- Job-order costing (Correct answer)
- Standard costing only
- Backflush costing
Correct answer: Job-order costing
Job-order costing accumulates costs for each unique job or customer order, making it ideal for customized production environments.
Question 7: The margin of safety is best defined as:
- The difference between fixed costs and contribution margin
- The excess of actual or budgeted sales over breakeven sales (Correct answer)
- Total revenue minus total variable costs
- Operating income divided by contribution margin
Correct answer: The excess of actual or budgeted sales over breakeven sales
The margin of safety measures how far sales can decline before the company reaches breakeven, calculated as actual sales minus breakeven sales.
ABA Managerial & Cost Accounting 2
A company uses activity-based costing (ABC).
Which of the following is an activity cost driver for a machine setup activity?