CFM CFM Cost Accounting & Management 1 — Questions and Answers
Question 1: Which costing method assigns overhead costs to products based on the activities that drive those costs?
- Job order costing
- Process costing
- Activity-based costing (ABC) (Correct answer)
- Standard costing
Correct 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.
Question 2: Contribution margin is calculated as:
- Revenue - Fixed Costs
- Revenue - Variable Costs (Correct answer)
- Gross Profit - Operating Expenses
- Net Income + Depreciation
Correct 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.
Question 3: At the break-even point, a company's:
- Net income equals zero and total revenue equals total costs (Correct answer)
- Gross profit margin equals 50%
- Variable costs exceed fixed costs
- Revenue exceeds total costs
Correct 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.
Question 4: Which type of cost remains constant in total regardless of changes in production volume within a relevant range?
- Variable cost
- Semi-variable cost
- Fixed cost (Correct answer)
- Step cost
Correct 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.
Question 5: What is a 'sunk cost' and how should it affect future business decisions?
- A future cost that has not yet been incurred; it should be included in all decisions
- A cost already incurred that cannot be recovered; it should be ignored in future decisions (Correct answer)
- A variable cost that changes with production; always include it in marginal analysis
- An opportunity cost representing the next best alternative; always consider it
Correct 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.
Question 6: In standard costing, a favorable variance means:
- Actual cost exceeded standard cost
- Actual cost was less than standard cost, benefiting profitability (Correct answer)
- The budget was revised upward
- Production volume exceeded the planned amount
Correct 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.
CFM CFM Cost Accounting & Management 1
Which costing method assigns overhead costs to products based on the activities that drive those costs?