CAA CAA Cost Accounting & Management 2 — Questions and Answers
Question 1: Under activity-based costing (ABC), what is the primary driver for assigning overhead costs to products?
- Direct labor hours only
- Machine hours only
- Activities that cause costs to be incurred (Correct answer)
- Units produced
Correct answer: Activities that cause costs to be incurred
ABC assigns overhead based on the activities (and their cost drivers) that actually cause costs, providing more accurate product costing.
Question 2: The difference between budgeted fixed overhead and applied fixed overhead is called the:
- Volume variance (Correct answer)
- Spending variance
- Efficiency variance
- Price variance
Correct answer: Volume variance
The fixed overhead volume variance measures the difference between budgeted fixed overhead and the overhead applied based on standard hours for actual output.
Question 3: Which of the following is NOT a characteristic of process costing?
- Used for homogeneous products
- Costs are averaged over all units
- Each job has a separate cost record (Correct answer)
- Work-in-process inventory uses equivalent units
Correct answer: Each job has a separate cost record
Separate cost records per job is a feature of job-order costing; process costing accumulates costs by department across all units.
Question 4: In CVP analysis, the margin of safety represents:
- The excess of budgeted sales over breakeven sales (Correct answer)
- Total variable costs below the breakeven point
- The contribution margin per unit
- Fixed costs divided by selling price
Correct answer: The excess of budgeted sales over breakeven sales
Margin of safety = Budgeted (or actual) sales − Breakeven sales, showing how much sales can drop before losses occur.
Question 5: Which inventory valuation method typically results in lower taxable income during periods of rising prices?
- FIFO
- Weighted average
- LIFO (Correct answer)
- Specific identification
Correct answer: LIFO
LIFO assigns the most recent (higher) costs to cost of goods sold, resulting in lower net income and lower taxable income during inflationary periods.
Question 6: A cost that has already been incurred and cannot be recovered regardless of future decisions is called a:
- Differential cost
- Opportunity cost
- Sunk cost (Correct answer)
- Controllable cost
Correct answer: Sunk cost
Sunk costs are past costs that are irrelevant to future decisions because they cannot be changed or recovered.
CAA CAA Cost Accounting & Management 2
Under activity-based costing (ABC), what is the primary driver for assigning overhead costs to products?