CA Cost Accounting 4 — Questions and Answers
Question 1: Activity-based costing (ABC) differs from traditional costing primarily because it:
- Allocates all costs based on direct labor hours
- Uses multiple cost drivers that reflect actual resource consumption (Correct answer)
- Eliminates indirect costs from product costs
- Applies overhead using a single plant-wide rate
Correct answer: Uses multiple cost drivers that reflect actual resource consumption
ABC identifies multiple activity cost pools and assigns costs using cost drivers that best reflect how each activity's resources are consumed by products.
Question 2: Which of the following is a unit-level activity in ABC?
- Setting up a machine for a new production run
- Processing a customer purchase order
- Inspecting an entire batch of products
- Drilling a hole in each individual unit produced (Correct answer)
Correct answer: Drilling a hole in each individual unit produced
Unit-level activities are performed each time a single unit is produced; drilling a hole per unit is a classic unit-level activity.
Question 3: The FIFO method in process costing differs from the weighted-average method in that FIFO:
- Ignores beginning work-in-process inventory entirely
- Keeps current-period costs separate from beginning WIP costs (Correct answer)
- Combines beginning WIP costs with current-period costs into a single average
- Only applies when there is no ending WIP
Correct answer: Keeps current-period costs separate from beginning WIP costs
FIFO isolates the work done in the current period on beginning WIP units from new units started, preventing cost blending between periods.
Question 4: Overapplied overhead occurs when:
- Actual overhead exceeds applied overhead
- Applied overhead exceeds actual overhead incurred (Correct answer)
- The predetermined rate is lower than expected
- Direct labor hours exceed budgeted hours
Correct answer: Applied overhead exceeds actual overhead incurred
Overapplied overhead means the amount of overhead charged to production (applied) is more than the overhead actually incurred during the period.
Question 5: Under standard costing, the fixed overhead volume variance measures:
- The difference between actual fixed overhead and budgeted fixed overhead
- The difference between budgeted fixed overhead and fixed overhead applied to standard hours (Correct answer)
- The efficiency of using fixed resources during the period
- Actual hours worked versus standard hours for actual output
Correct answer: The difference between budgeted fixed overhead and fixed overhead applied to standard hours
The fixed overhead volume variance = Budgeted fixed overhead − Fixed overhead applied (standard rate × standard hours for actual output), reflecting utilization of capacity.
Question 6: Throughput costing (super-variable costing) treats which costs as period costs?
- Direct materials only
- All costs except direct materials (Correct answer)
- Variable manufacturing overhead only
- Fixed and variable selling costs only
Correct answer: All costs except direct materials
Throughput costing considers only direct materials as inventoriable costs; all other costs (including direct labor and variable overhead) are expensed immediately as period costs.
Question 7: Which scenario represents a favorable labor efficiency variance?
- Workers were paid $2 more per hour than the standard rate
- Workers completed the job using fewer hours than the standard hours allowed (Correct answer)
- The actual labor rate was lower than the standard rate
- Actual production was higher than budgeted production
Correct answer: Workers completed the job using fewer hours than the standard hours allowed
Labor efficiency variance is favorable when actual hours used are less than the standard hours allowed for actual output, indicating productive use of labor.
CA Cost Accounting 4
Activity-based costing (ABC) differs from traditional costing primarily because it: