CFM CFM Cost Accounting & Management 2 — Questions and Answers
Question 1: What is the formula for the break-even point in units?
- Fixed Costs / Selling Price per Unit
- Fixed Costs / Contribution Margin per Unit (Correct answer)
- Variable Costs / Selling Price per Unit
- Total Costs / Units Produced
Correct answer: Fixed Costs / Contribution Margin per Unit
Break-even units = Fixed Costs / Contribution Margin per Unit, where contribution margin per unit = Selling Price - Variable Cost per Unit.
Question 2: Which cost is an example of a direct material cost in manufacturing?
- Factory supervisor salary
- Steel used to produce a car frame (Correct answer)
- Electricity for the production floor
- Depreciation on manufacturing equipment
Correct answer: Steel used to produce a car frame
Direct materials are raw materials that can be directly and specifically traced to the finished product, such as steel in automobile manufacturing.
Question 3: Under absorption costing (full costing), which of the following is included in product cost?
- Selling and administrative expenses
- Fixed manufacturing overhead (Correct answer)
- Research and development costs
- Interest expense
Correct answer: Fixed manufacturing overhead
Absorption costing includes all manufacturing costs — direct materials, direct labor, variable and fixed manufacturing overhead — in the product cost per unit.
Question 4: What distinguishes variable costing from absorption costing?
- Variable costing includes direct labor; absorption costing does not
- Variable costing treats fixed manufacturing overhead as a period cost, not a product cost (Correct answer)
- Variable costing is required by US GAAP for external reporting
- Variable costing capitalizes all costs in ending inventory
Correct answer: Variable costing treats fixed manufacturing overhead as a period cost, not a product cost
Variable (direct) costing expenses fixed manufacturing overhead immediately as a period cost, whereas absorption costing includes it in inventory until goods are sold.
Question 5: A manufacturer's direct labor efficiency variance is unfavorable when:
- Workers earned a higher wage rate than standard
- Workers used more hours than the standard hours allowed for actual production (Correct answer)
- Total variable overhead exceeded budget
- Material prices increased above standard
Correct answer: Workers used more hours than the standard hours allowed for actual production
The labor efficiency variance = (Actual Hours - Standard Hours) × Standard Rate; it is unfavorable when actual hours exceed the hours allowed for output produced.
Question 6: What is a joint cost in cost accounting?
- A cost shared equally between two departments by mutual agreement
- A common cost incurred to produce two or more products simultaneously up to the split-off point (Correct answer)
- An overhead cost allocated using activity drivers
- A cost that can be avoided if a product line is eliminated
Correct answer: A common cost incurred to produce two or more products simultaneously up to the split-off point
Joint costs arise in processes that simultaneously produce multiple products (e.g., refining crude oil produces gasoline, jet fuel, and diesel), allocable only up to the split-off point.
CFM CFM Cost Accounting & Management 2
What is the formula for the break-even point in units?