CFC Cost Accounting & Management 4 — Questions and Answers
Question 1: A company is evaluating whether to drop a product line. Which of the following would make dropping the line most justifiable?
- The product has a positive contribution margin
- Fixed costs allocated to it are largely unavoidable
- The product's segment margin is negative (Correct answer)
- The product uses excess plant capacity
Correct answer: The product's segment margin is negative
A negative segment margin means the product cannot cover its own avoidable fixed costs, making it a candidate for elimination.
Question 2: Which of the following statements about weighted-average process costing is correct?
- It separates costs of beginning WIP from current period costs
- It merges beginning WIP costs with current period costs (Correct answer)
- It is more accurate than FIFO for cost control purposes
- It requires calculating equivalent units for completed units only
Correct answer: It merges beginning WIP costs with current period costs
Weighted-average process costing blends beginning WIP costs with current period costs to compute a single average cost per equivalent unit.
Question 3: Kaizen costing differs from standard costing in that it:
- Uses predetermined standards set at the start of the year
- Focuses on continuous cost reduction targets during production (Correct answer)
- Applies only to direct material costs
- Is used exclusively for new product development
Correct answer: Focuses on continuous cost reduction targets during production
Kaizen costing sets ongoing reduction targets for current production processes rather than fixed standards established annually.
Question 4: An unfavorable labor efficiency variance indicates that:
- Workers were paid more per hour than the standard rate
- More hours were worked than the standard hours allowed for actual output (Correct answer)
- Fewer units were produced than budgeted
- Direct material waste exceeded the standard amount
Correct answer: More hours were worked than the standard hours allowed for actual output
Labor efficiency variance = (Actual hours − Standard hours allowed) × Standard rate; an unfavorable result means excess hours were used.
Question 5: Target costing starts with:
- Actual production costs and adds a desired markup
- A market-driven selling price and subtracts the required profit margin (Correct answer)
- Engineering estimates of production costs
- The previous year's cost base adjusted for inflation
Correct answer: A market-driven selling price and subtracts the required profit margin
Target costing derives the allowable cost by subtracting the target profit margin from the competitive market price.
Question 6: Which of the following is NOT a component of the cost of quality?
- Prevention costs
- Appraisal costs
- Internal failure costs
- Opportunity costs of excess capacity (Correct answer)
Correct answer: Opportunity costs of excess capacity
The four standard quality cost categories are prevention, appraisal, internal failure, and external failure — opportunity costs of excess capacity are not included.
Question 7: Life cycle costing is valuable for decision-making because it:
- Focuses exclusively on manufacturing phase costs
- Considers all costs from design through disposal (Correct answer)
- Ignores post-sale customer support costs
- Is required under GAAP for external reporting
Correct answer: Considers all costs from design through disposal
Life cycle costing captures total costs over a product's entire life — R&D, design, production, marketing, and post-sale support.
CFC Cost Accounting & Management 4
A company is evaluating whether to drop a product line.
Which of the following would make dropping the line most justifiable?