CCA Cost Accounting & Management Flashcards

Which method of allocating service department costs allocates costs sequentially, with no re-allocation back to previously allocated departments?

Answer: Step-down method

The step-down (sequential) method allocates service department costs in sequence, recognizing some inter-departmental services but not allowing reverse allocations.

What is the primary purpose of a flexible budget in cost management?

Answer: To adjust budgeted costs based on actual activity levels for meaningful variance analysis

A flexible budget recalculates expected costs at the actual activity level achieved, allowing fair comparison with actual costs for meaningful variance analysis.

Under variable costing, which of the following is treated as a period cost?

Answer: Fixed manufacturing overhead

Under variable costing, fixed manufacturing overhead is expensed as a period cost in the period incurred rather than being capitalized in inventory.

What does a high operating leverage ratio indicate about a company's cost structure?

Answer: A large proportion of fixed costs relative to variable costs

High operating leverage means fixed costs dominate the cost structure, so profit swings dramatically with small changes in sales volume.

A company is deciding whether to make or buy a component. Which cost is most relevant to this decision?

Answer: Avoidable direct material and labor costs

Only avoidable costs — those that can be eliminated by outsourcing — are relevant to a make-or-buy decision; unavoidable fixed costs and sunk costs are irrelevant.

Which variance arises when actual overhead costs differ from the overhead applied to production using the predetermined overhead rate?

Answer: Overhead spending variance

The overhead spending variance compares actual overhead incurred with the flexible budget allowance for overhead at actual activity level.