Management Accounting Flashcards

A company uses activity-based costing (ABC). Which of the following is the BEST description of a cost driver?

Answer: A factor that causes changes in the cost of an activity

A cost driver is any factor that causes a change in the cost of an activity, such as number of setups or machine hours.

Under marginal costing, which costs are included in the valuation of closing inventory?

Answer: Variable production costs only

Under marginal costing, only variable production costs are included in inventory valuation; fixed costs are treated as period costs.

What is the main purpose of a flexible budget?

Answer: To compare actual costs against costs expected at the actual level of activity

A flexible budget adjusts budgeted figures to the actual level of activity, enabling meaningful variance analysis.

A product has a selling price of $50, variable cost of $30, and total fixed costs of $40,000. What is the breakeven point in units?

Answer: 2,000 units

Contribution per unit = $50 − $30 = $20; breakeven = $40,000 ÷ $20 = 2,000 units.

In a standard costing system, a favorable material price variance occurs when:

Answer: The actual price paid is less than the standard price

A favorable material price variance arises when the actual price paid per unit of material is less than the standard price.

Which of the following is an example of a stepped fixed cost?

Answer: Supervisor salaries that increase when output exceeds a certain level

Stepped fixed costs remain constant within a range but jump to a higher level when activity exceeds a threshold, such as hiring an additional supervisor.

A company operates a job costing system. Overhead is absorbed on the basis of direct labor hours. Budgeted overhead is $120,000 and budgeted direct labor hours are 24,000. If actual overhead incurred is $125,000 and actual direct labor hours worked are 25,000, what is the over/under absorption?

Answer: $5,000 over-absorbed

OAR = $120,000 ÷ 24,000 = $5/hr; absorbed = 25,000 × $5 = $125,000; actual = $125,000; therefore exactly absorbed — wait: $125,000 absorbed vs $125,000 actual = $0. Actually over-absorbed by $0. Let me recalculate: absorbed overhead = 25,000 × 5 = $125,000; actual overhead = $125,000; difference = $0.