Certified Management Accountant Cost Management 2 — Questions and Answers
Question 1: A company uses activity-based costing. The machine setup activity has a cost pool of $120,000 and 400 setups. If Product X requires 60 setups, what is the setup cost allocated to Product X?
- $18,000 (Correct answer)
- $30,000
- $15,000
- $24,000
Correct answer: $18,000
$120,000 / 400 setups = $300/setup × 60 setups = $18,000.
Question 2: Which costing method is most appropriate when a company produces heterogeneous products that are customized to individual customer specifications?
- Job order costing (Correct answer)
- Process costing
- Backflush costing
- Standard costing
Correct answer: Job order costing
Job order costing tracks costs per unique job, making it ideal for customized products.
Question 3: Under variable costing, fixed manufacturing overhead is treated as a:
- Period cost expensed in the current period (Correct answer)
- Product cost included in inventory
- Sunk cost excluded from reporting
- Mixed cost allocated to units produced
Correct answer: Period cost expensed in the current period
Variable costing treats fixed manufacturing overhead as a period cost, not a product cost.
Question 4: A manufacturer's equivalent units of production for conversion costs are 50,000 units. Total conversion costs are $375,000. Beginning WIP had $45,000 in conversion costs. Using the weighted-average method, what is the cost per equivalent unit?
- $7.50 (Correct answer)
- $6.60
- $8.40
- $7.00
Correct answer: $7.50
Weighted-average cost per EU = Total costs ÷ EU = $375,000 ÷ 50,000 = $7.50.
Question 5: The theory of constraints focuses on:
- Maximizing throughput by managing bottleneck resources (Correct answer)
- Reducing all costs simultaneously across every department
- Eliminating non-value-added activities through process redesign
- Allocating overhead based on value-added activities
Correct answer: Maximizing throughput by managing bottleneck resources
TOC identifies and exploits the system's binding constraint (bottleneck) to maximize throughput.
Question 6: Which of the following is a characteristic of target costing?
- Selling price minus desired profit determines the allowable cost (Correct answer)
- Cost is determined first, then a profit margin is added to set price
- It is applied only after the product has entered the market
- It focuses solely on manufacturing costs, excluding design costs
Correct answer: Selling price minus desired profit determines the allowable cost
Target costing sets the allowable cost as: Target price − Target profit = Target cost.
Question 7: A company has a contribution margin ratio of 40% and fixed costs of $200,000. What sales volume is needed to achieve a target profit of $60,000?
- $650,000 (Correct answer)
- $500,000
- $600,000
- $750,000
Correct answer: $650,000
(Fixed costs + Target profit) ÷ CM ratio = ($200,000 + $60,000) ÷ 0.40 = $650,000.
Certified Management Accountant Cost Management 2
A company uses activity-based costing.
The machine setup activity has a cost pool of $120,000 and 400 setups.
If Product X requires 60 setups, what is the setup cost allocated to Product X?