AICPA AICPA Managerial Accounting 2 — Questions and Answers
Question 1: Activity-based costing (ABC) improves product costing accuracy over traditional volume-based methods primarily by:
- Assigning overhead costs using multiple cost drivers that reflect actual resource consumption (Correct answer)
- Eliminating all fixed overhead from product costs
- Allocating costs only to high-volume products
- Using direct labor hours as the single overhead allocation base
Correct answer: Assigning overhead costs using multiple cost drivers that reflect actual resource consumption
ABC uses multiple cost drivers tied to specific activities, more accurately tracing overhead to products based on actual consumption rather than a single volume measure.
Question 2: A relevant cost for a make-or-buy decision is best described as a cost that:
- Differs between the make and buy alternatives and will be incurred in the future (Correct answer)
- Has already been incurred and cannot be recovered
- Is allocated based on direct labor hours
- Remains the same regardless of the decision made
Correct answer: Differs between the make and buy alternatives and will be incurred in the future
Relevant costs are future costs that differ between alternatives; sunk costs and costs that are identical under all alternatives are irrelevant.
Question 3: A flexible budget differs from a static budget in that it:
- Adjusts revenues and variable costs to the actual activity level achieved (Correct answer)
- Holds all costs fixed regardless of actual output
- Is prepared only after the accounting period ends
- Eliminates variance analysis
Correct answer: Adjusts revenues and variable costs to the actual activity level achieved
A flexible budget recalculates expected revenues and variable costs at the actual volume, enabling a meaningful comparison to actual results.
Question 4: In capital budgeting, which method considers the time value of money and expresses the project's return as a single percentage rate?
- Internal rate of return (IRR) (Correct answer)
- Payback period
- Accounting rate of return (ARR)
- Net present value (NPV)
Correct answer: Internal rate of return (IRR)
IRR is the discount rate that makes the NPV of all cash flows equal to zero, expressing the project's return as a percentage while incorporating time value of money.
Question 5: A company has a contribution margin ratio of 40% and fixed costs of $200,000. What is the break-even point in sales dollars?
- $500,000 (Correct answer)
- $280,000
- $140,000
- $800,000
Correct answer: $500,000
Break-even sales = Fixed costs ÷ Contribution margin ratio = $200,000 ÷ 0.40 = $500,000.
Question 6: Transfer pricing in a decentralized company is the price charged when one division sells goods or services to another division. The most common market-based transfer price is:
- The prevailing external market price for the transferred product (Correct answer)
- Variable cost plus a fixed fee
- Full absorption cost with no markup
- Negotiated price set by top management
Correct answer: The prevailing external market price for the transferred product
Market-based transfer pricing uses the external market price, which is generally considered the most objective and fair method for inter-divisional transactions.
AICPA AICPA Managerial Accounting 2
Activity-based costing (ABC) improves product costing accuracy over traditional volume-based methods primarily by: