Certified Management Accountant Cost Management 4 — Questions and Answers
Question 1: In a standard costing system, the materials price variance is calculated as:
- (Actual price − Standard price) × Actual quantity purchased (Correct answer)
- (Actual price − Standard price) × Standard quantity allowed
- (Standard price − Actual price) × Standard quantity used
- (Actual quantity − Standard quantity) × Standard price
Correct answer: (Actual price − Standard price) × Actual quantity purchased
Materials price variance = (AP − SP) × AQ purchased, isolating the price effect at point of purchase.
Question 2: A favorable labor efficiency variance indicates that:
- Workers used fewer hours than the standard allowed for actual output (Correct answer)
- Workers were paid a lower wage rate than the standard rate
- Actual output exceeded the budgeted production volume
- Total labor costs were below the flexible budget amount
Correct answer: Workers used fewer hours than the standard allowed for actual output
Labor efficiency variance = (AH − SH) × SR; a favorable result means AH < SH allowed.
Question 3: A company produces two products sharing a constrained machine with 1,000 available hours. Product A has a contribution margin of $30 and requires 3 machine hours. Product B has a CM of $20 and requires 1 machine hour. Which product should be prioritized?
- Product B, because its CM per machine hour ($20) exceeds Product A's ($10) (Correct answer)
- Product A, because its total contribution margin per unit ($30) is higher
- Both equally, because the machine time should be split proportionally
- Product A, because it generates more revenue per unit sold
Correct answer: Product B, because its CM per machine hour ($20) exceeds Product A's ($10)
Product B yields $20/machine hour vs. Product A's $10/machine hour, so B maximizes constrained resource output.
Question 4: The high-low method uses which data points to estimate the variable cost per unit?
- The highest and lowest activity levels and their corresponding total costs (Correct answer)
- The average of all data points over the relevant range
- The two data points with the largest deviation from the mean
- The highest cost period and the most recent period
Correct answer: The highest and lowest activity levels and their corresponding total costs
The high-low method uses only the highest and lowest activity levels to estimate the variable cost slope.
Question 5: Under absorption costing, when production exceeds sales, net income is generally:
- Higher than variable costing net income because fixed OH is deferred in inventory (Correct answer)
- Lower than variable costing net income because more fixed OH is expensed
- Equal to variable costing net income regardless of inventory changes
- Lower because absorption costing requires more overhead to be allocated
Correct answer: Higher than variable costing net income because fixed OH is deferred in inventory
When production > sales, absorption costing carries fixed OH in ending inventory, increasing income vs. variable costing.
Question 6: A byproduct is distinguished from a joint product primarily by its:
- Relatively minor sales value compared to the main products (Correct answer)
- Point in the production process at which it is separated
- Requirement for additional processing costs after split-off
- Need to be allocated a share of joint production costs
Correct answer: Relatively minor sales value compared to the main products
Byproducts have minor relative sales value; joint products all have significant sales value.
Question 7: Environmental costs in cost management are categorized under ISO 14000 standards as prevention, appraisal, internal failure, and external failure costs. Which is an example of an external failure environmental cost?
- Fines and cleanup costs for environmental damage discovered by regulators (Correct answer)
- Costs of environmental training programs for production employees
- Testing and inspection of emissions before products leave the facility
- Redesigning processes to reduce waste generation
Correct answer: Fines and cleanup costs for environmental damage discovered by regulators
External failure environmental costs arise when environmental harm escapes the facility and is detected externally.
Certified Management Accountant Cost Management 4
In a standard costing system, the materials price variance is calculated as: