CIA Cost Accounting 2 — Questions and Answers
Question 1: Which costing method assigns manufacturing overhead to products based on multiple cost drivers rather than a single plant-wide rate?
- Job order costing
- Process costing
- Activity-based costing (Correct answer)
- Standard costing
Correct answer: Activity-based costing
Activity-based costing (ABC) uses multiple cost drivers to more accurately assign overhead costs to products or services.
Question 2: A company produces 10,000 units with fixed costs of $50,000 and variable costs of $3 per unit. What is the total cost per unit?
- $3.00
- $5.00
- $8.00 (Correct answer)
- $53.00
Correct answer: $8.00
Total cost = $50,000 + (10,000 × $3) = $80,000; cost per unit = $80,000 ÷ 10,000 = $8.00.
Question 3: Under variable costing, which of the following is treated as a period cost rather than a product cost?
- Direct materials
- Direct labor
- Variable manufacturing overhead
- Fixed manufacturing overhead (Correct answer)
Correct answer: Fixed manufacturing overhead
Under variable costing, fixed manufacturing overhead is expensed as a period cost and not included in inventory valuation.
Question 4: The contribution margin ratio is best defined as:
- Net income divided by sales revenue
- Gross profit divided by total assets
- Contribution margin divided by sales revenue (Correct answer)
- Fixed costs divided by variable costs
Correct answer: Contribution margin divided by sales revenue
The contribution margin ratio equals contribution margin divided by sales revenue, showing the percentage of each sales dollar available to cover fixed costs.
Question 5: Which of the following best describes a sunk cost?
- A cost that varies with production volume
- A cost that has already been incurred and cannot be recovered (Correct answer)
- A cost that will be incurred in the future
- A cost shared between two or more departments
Correct answer: A cost that has already been incurred and cannot be recovered
A sunk cost is a past expenditure that cannot be recovered and is therefore irrelevant to future decision-making.
Question 6: In a process costing system, equivalent units are calculated to:
- Determine the break-even point
- Allocate costs to partially completed units (Correct answer)
- Compute the predetermined overhead rate
- Separate fixed and variable costs
Correct answer: Allocate costs to partially completed units
Equivalent units convert partially completed units into a comparable number of fully completed units for cost allocation purposes.
Question 7: A favorable variance in direct materials usage means that:
- More materials were used than the standard quantity
- The actual material price exceeded the standard price
- Fewer materials were used than the standard quantity (Correct answer)
- Total production exceeded the budgeted level
Correct answer: Fewer materials were used than the standard quantity
A favorable direct materials usage variance occurs when actual quantity used is less than the standard quantity allowed for actual output.
CIA Cost Accounting 2
Which costing method assigns manufacturing overhead to products based on multiple cost drivers rather than a single plant-wide rate?