CFM Cost Accounting & Management Flashcards

Which costing method assigns overhead costs to products based on the activities that drive those costs?

Answer: Activity-based costing (ABC)

Activity-based costing identifies cost drivers for each overhead activity and allocates costs to products based on their actual consumption of those activities.

Contribution margin is calculated as:

Answer: Revenue - Variable Costs

Contribution margin = Revenue - Variable Costs, showing how much revenue contributes to covering fixed costs and generating profit after variable costs are recovered.

At the break-even point, a company's:

Answer: Net income equals zero and total revenue equals total costs

Break-even is the output level where total revenue equals total costs (fixed + variable), resulting in zero profit or loss.

Which type of cost remains constant in total regardless of changes in production volume within a relevant range?

Answer: Fixed cost

Fixed costs (e.g., rent, salaries of permanent staff) do not change with production volume within a relevant range, making per-unit fixed cost decrease as volume increases.

What is a 'sunk cost' and how should it affect future business decisions?

Answer: A cost already incurred that cannot be recovered; it should be ignored in future decisions

Sunk costs are irretrievable past expenditures and should not influence future decisions; only relevant incremental future costs and benefits should drive decision-making.

In standard costing, a favorable variance means:

Answer: Actual cost was less than standard cost, benefiting profitability

A favorable variance occurs when actual costs are below standard (budgeted) costs, indicating more efficient performance than planned.