CIA Management Accounting 2 — Questions and Answers
Question 1: A company uses a job-order costing system. During the period, actual overhead was $180,000 and applied overhead was $165,000. How should the $15,000 difference be treated at year-end?
- Debit Cost of Goods Sold for $15,000 (Correct answer)
- Credit Cost of Goods Sold for $15,000
- Debit Manufacturing Overhead for $15,000
- Credit Finished Goods Inventory for $15,000
Correct answer: Debit Cost of Goods Sold for $15,000
When overhead is underapplied (actual > applied), Cost of Goods Sold is debited to eliminate the debit balance in Manufacturing Overhead.
Question 2: Which transfer pricing method sets the internal price equal to the variable cost of the producing division plus an opportunity cost?
- Market-based transfer price
- Cost-plus transfer price
- Negotiated transfer price
- Marginal cost transfer price (Correct answer)
Correct answer: Marginal cost transfer price
The marginal cost (or variable cost plus opportunity cost) method captures both the out-of-pocket cost and the foregone contribution margin from external sales.
Question 3: A firm's operating leverage factor is 5. If sales increase by 8%, what is the expected percentage increase in operating income?
- 8%
- 1.6%
- 40% (Correct answer)
- 13%
Correct answer: 40%
Operating leverage factor multiplied by the percentage change in sales equals the percentage change in operating income: 5 × 8% = 40%.
Question 4: Which of the following costs is most likely classified as a discretionary fixed cost?
- Straight-line depreciation on factory equipment
- Advertising expenditures (Correct answer)
- Property taxes on the plant
- Insurance on manufacturing machinery
Correct answer: Advertising expenditures
Discretionary fixed costs, like advertising, arise from periodic management decisions and can be adjusted in the short run without impairing core operations.
Question 5: Under throughput costing, which costs are expensed in the period incurred rather than inventoried?
- Direct materials only
- Direct materials and direct labor
- All manufacturing costs except direct materials (Correct answer)
- All variable and fixed manufacturing overhead
Correct answer: All manufacturing costs except direct materials
Throughput costing treats only direct materials as inventory costs; all other manufacturing costs (labor, overhead) are period expenses.
Question 6: A division reports the following: sales $500,000; variable costs $300,000; fixed costs $120,000. What is the division's contribution margin ratio?
- 36%
- 40% (Correct answer)
- 16%
- 60%
Correct answer: 40%
Contribution margin ratio = (Sales − Variable Costs) / Sales = ($500,000 − $300,000) / $500,000 = 40%.
Question 7: The balanced scorecard's 'learning and growth' perspective primarily addresses which question?
- How do customers see us?
- What must we excel at internally?
- Can we continue to improve and create value? (Correct answer)
- How do we look to shareholders?
Correct answer: Can we continue to improve and create value?
The learning and growth perspective focuses on employee capabilities, information systems, and organizational culture that enable future improvement.
CIA Management Accounting 2
A company uses a job-order costing system.
During the period, actual overhead was $180,000 and applied overhead was $165,000.
How should the $15,000 difference be treated at year-end?