Cost Accounting Flashcards
7 cards from real CA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Cost Accounting flashcards as text
Which costing method is most appropriate when products are manufactured in continuous, homogeneous batches?
Answer: Process costing
Process costing accumulates costs by department or process and averages them across homogeneous units produced continuously.
In a process costing system using the weighted-average method, equivalent units of production include:
Answer: Units completed plus equivalent units in ending WIP, ignoring beginning WIP percentage
Under weighted-average, equivalent units = units transferred out + (ending WIP units × completion %). Beginning WIP's prior-period work is merged in without separate tracking.
A company has a favorable material quantity variance. This MOST likely means:
Answer: Less material was used than the standard quantity allowed for actual output
A favorable quantity variance means actual usage was less than the standard quantity allowed for actual production, indicating efficient material use.
Which of the following is an example of a committed fixed cost?
Answer: Depreciation on factory equipment
Committed fixed costs arise from long-term investment decisions and cannot be easily changed in the short run; depreciation on factory equipment is a classic example.
Under absorption costing, when production exceeds sales, net income compared to variable costing will be:
Answer: Higher
When production exceeds sales, fixed overhead is deferred in ending inventory under absorption costing, causing higher net income compared to variable costing.
The margin of safety ratio is calculated as:
Answer: (Actual sales − Break-even sales) ÷ Actual sales
The margin of safety ratio = (Actual sales − Break-even sales) ÷ Actual sales, showing the percentage by which sales can drop before losses occur.
What does a high degree of operating leverage (DOL) indicate?
Answer: A small change in sales volume will produce a large change in net income
A high DOL means fixed costs are a large proportion of total costs, so small sales changes create amplified swings in operating income.