CA Cost Accounting 5

Question 1

The theory of constraints (TOC) focuses management attention on:

Accepted Answer

Identifying and exploiting the bottleneck that limits throughput

Answer

TOC holds that the constraint (bottleneck) limits the entire system's output; improving non-constraints yields no benefit until the bottleneck is addressed.

Question 2

Backflush costing is MOST suitable for companies that:

Accepted Answer

Use JIT manufacturing with minimal WIP and rapid throughput

Answer

Backflush costing delays cost assignment until production is complete (or sold), which is appropriate when WIP levels are negligible, as in JIT environments.

Question 3

Which transfer pricing method sets the price equal to the variable cost plus a lump-sum fixed-cost contribution?

Accepted Answer

Dual-rate transfer price

Answer

Dual-rate pricing charges the receiving division variable cost for marginal decisions while compensating the supplying division for fixed costs via a separate lump-sum, eliminating distortions.

Question 4

When evaluating a decision to drop a product line, the MOST relevant cost to consider is:

Accepted Answer

Avoidable fixed costs directly associated with the product line

Answer

Only avoidable costs — those that will actually disappear if the product line is dropped — are relevant; allocated and sunk costs remain regardless of the decision.

Question 5

A company's product mix decision under a single binding constraint should maximize:

Accepted Answer

Contribution margin per unit of constraining resource

Answer

When one resource is scarce, the optimal mix maximizes contribution margin per unit of the constrained resource (e.g., per machine hour or labor hour).

(CA) Certified Accountant Practice Test

(CA) Certified Accountant Practice Test

CA Cost Accounting 5