CA Managerial Accounting & Budgeting 2 — Questions and Answers
Question 1: A company has fixed costs of $120,000, variable costs of $8 per unit, and sells each unit for $20. What is the break-even point in units?
- 6,000 units
- 10,000 units (Correct answer)
- 15,000 units
- 8,000 units
Correct answer: 10,000 units
Break-even units = Fixed costs / (Selling price - Variable cost) = $120,000 / ($20 - $8) = 10,000 units.
Question 2: Which budgeting approach builds the budget from zero each period, requiring justification for every expenditure?
- Incremental budgeting
- Rolling budgeting
- Zero-based budgeting (Correct answer)
- Activity-based budgeting
Correct answer: Zero-based budgeting
Zero-based budgeting starts from a 'zero base' each period, requiring managers to justify all expenses rather than simply adjusting prior-year figures.
Question 3: In a standard costing system, an unfavorable direct labor efficiency variance means:
- Workers were paid more than standard rate
- More hours were worked than the standard allowed (Correct answer)
- Fewer units were produced than planned
- Overtime was authorized by management
Correct answer: More hours were worked than the standard allowed
Labor efficiency variance is unfavorable when actual hours worked exceed standard hours allowed for the actual output produced.
Question 4: The master budget's starting point in a manufacturing company is typically the:
- Production budget
- Cash budget
- Sales budget (Correct answer)
- Direct materials budget
Correct answer: Sales budget
The sales budget is prepared first because all other budgets—production, materials, labor, and overhead—depend on projected sales volume.
Question 5: Which cost behavior pattern remains constant in total but varies per unit as production volume changes?
- Variable cost
- Mixed cost
- Step cost
- Fixed cost (Correct answer)
Correct answer: Fixed cost
Fixed costs remain constant in total regardless of volume, so the per-unit cost decreases as more units are produced.
Question 6: Under absorption costing, which of the following is included in product cost but excluded under variable costing?
- Direct materials
- Variable manufacturing overhead
- Fixed manufacturing overhead (Correct answer)
- Direct labor
Correct answer: Fixed manufacturing overhead
Absorption costing treats fixed manufacturing overhead as a product cost, while variable costing treats it as a period cost expensed immediately.
Question 7: A flexible budget differs from a static budget in that a flexible budget:
- Is prepared monthly rather than annually
- Adjusts revenues and costs to the actual activity level (Correct answer)
- Excludes fixed costs from the analysis
- Is used only for capital expenditure planning
Correct answer: Adjusts revenues and costs to the actual activity level
A flexible budget recalculates expected revenues and costs based on actual output achieved, enabling more meaningful variance analysis.
CA Managerial Accounting & Budgeting 2
A company has fixed costs of $120,000, variable costs of $8 per unit, and sells each unit for $20.
What is the break-even point in units?