CIA Cost Accounting 3

Question 1

Which of the following costs would be classified as a conversion cost?

Accepted Answer

Direct labor and manufacturing overhead

Answer

Conversion costs consist of direct labor and manufacturing overhead — the costs required to convert raw materials into finished goods.

Question 2

The predetermined overhead rate is calculated by dividing:

Accepted Answer

Budgeted overhead by budgeted activity

Answer

The predetermined overhead rate uses budgeted figures for both overhead and the chosen activity base to apply overhead in advance.

Question 3

Which inventory valuation method will result in the lowest net income during a period of rising prices?

Accepted Answer

LIFO

Answer

Under LIFO during rising prices, the most recently purchased (higher-cost) inventory is sold first, increasing COGS and reducing net income.

Question 4

Joint costs in a joint production process should be allocated using which primary purpose?

Accepted Answer

External financial reporting of inventory values

Answer

Joint cost allocation is primarily used for inventory valuation and external financial reporting, not for decision-making, since joint costs are sunk at the split-off point.

Question 5

If a company's actual overhead exceeds applied overhead, the difference is referred to as:

Accepted Answer

Under-applied overhead

Answer

Under-applied overhead occurs when actual overhead incurred exceeds the overhead applied to production using the predetermined rate.

(CIA) Certified Industrial Accountant Practice Test

(CIA) Certified Industrial Accountant Practice Test

CIA Cost Accounting 3