CA Management Accounting 2 — Questions and Answers
Question 1: Which costing method assigns all manufacturing costs (fixed and variable) to products?
- Variable costing
- Absorption costing (Correct answer)
- Marginal costing
- Direct costing
Correct answer: Absorption costing
Absorption costing (full costing) includes both fixed and variable manufacturing overhead in product costs, as required by GAAP for external reporting.
Question 2: A company has a contribution margin ratio of 40% and fixed costs of $200,000. What is the break-even point in sales dollars?
- $80,000
- $280,000
- $500,000 (Correct answer)
- $333,333
Correct answer: $500,000
Break-even sales = Fixed costs ÷ Contribution margin ratio = $200,000 ÷ 0.40 = $500,000.
Question 3: What does a favorable direct materials price variance indicate?
- More materials were used than standard
- Materials were purchased at a lower price than standard (Correct answer)
- Less materials were used than standard
- Production exceeded budgeted output
Correct answer: Materials were purchased at a lower price than standard
A favorable materials price variance means actual purchase price was less than the standard price per unit of material.
Question 4: In activity-based costing (ABC), what is a cost driver?
- The total overhead cost pool
- A factor that causes a change in the cost of an activity (Correct answer)
- The difference between budgeted and actual costs
- A fixed cost that cannot be traced to products
Correct answer: A factor that causes a change in the cost of an activity
A cost driver is the factor (such as machine hours or number of setups) that causes overhead costs to be incurred in an activity.
Question 5: Which budget is typically prepared first in the master budget process?
- Production budget
- Cash budget
- Sales budget (Correct answer)
- Direct labor budget
Correct answer: Sales budget
The sales budget is prepared first because all other operating budgets depend on the sales forecast.
Question 6: What is the purpose of a flexible budget?
- To set maximum spending limits for each department
- To compare actual costs to budgeted costs at the actual activity level (Correct answer)
- To eliminate fixed costs from performance analysis
- To allocate overhead based on machine hours only
Correct answer: To compare actual costs to budgeted costs at the actual activity level
A flexible budget adjusts budgeted amounts to the actual level of activity, allowing for meaningful variance analysis.
Question 7: Under variable costing, which of the following is treated as a period cost?
- Direct materials
- Direct labor
- Variable manufacturing overhead
- Fixed manufacturing overhead (Correct answer)
Correct answer: Fixed manufacturing overhead
Under variable costing, fixed manufacturing overhead is expensed in the period incurred rather than included in inventory cost.
CA Management Accounting 2
Which costing method assigns all manufacturing costs (fixed and variable) to products?