CBS Cost Accounting & Management 3

Question 1

In a liquidating Chapter 7 bankruptcy, which cost concept is most relevant when deciding whether to complete work-in-process inventory before selling?

Accepted Answer

Incremental (differential) cost analysis

Answer

Incremental cost analysis compares the additional costs to complete WIP against the higher proceeds from selling finished goods versus scrap.

Question 2

Activity-based costing (ABC) differs from traditional costing in bankruptcy analysis primarily because ABC:

Accepted Answer

Assigns overhead using multiple cost drivers tied to activities

Answer

ABC uses multiple activity cost drivers (e.g., machine setups, orders processed) to more accurately trace overhead costs to products or services.

Question 3

A debtor's operating leverage factor is 4. If sales increase 10%, operating income will increase by approximately:

Accepted Answer

40%

Answer

Operating leverage factor × % change in sales = 4 × 10% = 40% increase in operating income.

Question 4

When a CBS specialist evaluates whether a debtor's pricing is below cost, which cost floor concept prevents long-run viability concerns?

Accepted Answer

Full cost (absorption cost) floor

Answer

Long-run sustainable pricing must cover full absorption cost (including fixed overhead allocation) to ensure all costs are recovered over time.

Question 5

Process costing calculates cost per equivalent unit. If a department has 5,000 units 60% complete and 10,000 fully completed units, what are the equivalent units for conversion costs?

Accepted Answer

13,000

Answer

Equivalent units = 10,000 (complete) + (5,000 × 60%) = 10,000 + 3,000 = 13,000.

(CBS) Certified Bankruptcy Specialist Practice Test

(CBS) Certified Bankruptcy Specialist Practice Test

CBS Cost Accounting & Management 3