CBS Expense Management & Cost Control 2 — Questions and Answers
Question 1: A company notices its overhead absorption rate is significantly higher than actual overhead incurred. This situation is known as:
- Over-absorbed overhead (Correct answer)
- Under-absorbed overhead
- Fixed cost variance
- Volume variance
Correct answer: Over-absorbed overhead
Over-absorbed overhead occurs when the absorbed (applied) overhead exceeds actual overhead costs incurred during the period.
Question 2: Which cost control technique involves setting detailed standards for materials, labor, and overhead and then measuring deviations from those standards?
- Activity-based costing
- Standard costing (Correct answer)
- Marginal costing
- Process costing
Correct answer: Standard costing
Standard costing establishes predetermined benchmarks and measures actual performance against them through variance analysis.
Question 3: A department's actual material cost was $45,000 versus a budgeted $40,000. The $5,000 difference is called a:
- Favorable variance
- Adverse (unfavorable) variance (Correct answer)
- Budget surplus
- Cost allocation error
Correct answer: Adverse (unfavorable) variance
When actual costs exceed budgeted costs, the resulting variance is unfavorable (adverse) because it negatively impacts profit.
Question 4: The 'economic order quantity' (EOQ) model is primarily used to minimize which combination of costs?
- Production and labor costs
- Ordering and holding (carrying) costs (Correct answer)
- Fixed and sunk costs
- Overhead and administrative costs
Correct answer: Ordering and holding (carrying) costs
EOQ finds the optimal order quantity that minimizes the total of ordering costs and inventory holding (carrying) costs.
Question 5: Which expense reporting practice helps organizations identify and eliminate 'expense creep' over time?
- Accrual accounting adjustments
- Rolling 12-month trend analysis of expense categories (Correct answer)
- Single-period budget comparisons
- Revenue recognition review
Correct answer: Rolling 12-month trend analysis of expense categories
Rolling 12-month trend analysis reveals gradual cost increases (expense creep) that single-period comparisons might miss.
Question 6: A cost that remains constant per unit but varies in total with production volume is classified as a:
- Fixed cost
- Mixed cost
- Variable cost (Correct answer)
- Step cost
Correct answer: Variable cost
Variable costs have a constant per-unit amount but their total changes proportionally with changes in activity level.
Question 7: Under a flexible budget, what happens to the budgeted fixed cost per unit when production volume increases?
- It increases proportionally
- It decreases per unit (Correct answer)
- It remains constant per unit
- It doubles at each step
Correct answer: It decreases per unit
Fixed costs remain constant in total, so as volume increases, the fixed cost per unit decreases (spread across more units).
CBS Expense Management & Cost Control 2
A company notices its overhead absorption rate is significantly higher than actual overhead incurred.
This situation is known as: