Managerial Accounting & Budgeting 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 Managerial Accounting & Budgeting flashcards as text
The margin of safety represents:
Answer: The excess of budgeted sales over break-even sales
Margin of safety = Budgeted (or actual) sales minus break-even sales, showing how much sales can decline before losses occur.
When using activity-based costing (ABC), overhead costs are assigned to products based on:
Answer: The number of cost drivers consumed by each product
ABC assigns overhead costs using multiple cost drivers that reflect the actual activities consuming resources, providing more accurate product costing.
A favorable materials price variance combined with an unfavorable materials quantity variance most likely indicates:
Answer: Lower-quality materials were purchased at a discount but wasted more in production
Buying cheaper, lower-quality materials saves on price but often leads to higher waste or defects, causing an unfavorable quantity variance.
In capital budgeting, the payback period method is criticized primarily because it:
Answer: Ignores cash flows occurring after the payback period
The payback period ignores all cash flows beyond the payback cutoff date, potentially rejecting projects with large long-term returns.
Which transfer pricing method sets the internal price equal to what the selling division would charge an external customer?
Answer: Market-based transfer pricing
Market-based transfer pricing uses the external market price as the internal charge, encouraging divisions to operate as if dealing with outside parties.
A company is operating at full capacity. The relevant cost to consider when accepting a special order that requires using existing capacity is:
Answer: Variable cost plus the contribution margin foregone from displaced sales
At full capacity, accepting a special order displaces regular sales, so the relevant cost includes variable costs plus the opportunity cost of lost contribution margin.
Responsibility accounting holds managers accountable for:
Answer: Only costs and revenues they can directly influence and control
Responsibility accounting evaluates managers only on items they can actually control, ensuring fair performance measurement.