CIA Management Accounting 3

Question 1

Which variance measures the difference between the actual quantity of direct materials purchased and the standard quantity, multiplied by the standard price?

Accepted Answer

Material quantity variance

Answer

The material quantity (or usage) variance = (Actual Quantity Used − Standard Quantity Allowed) × Standard Price.

Question 2

A company with a target ROI of 15% is evaluating a $400,000 investment. What minimum annual operating income must the investment generate?

Accepted Answer

$60,000

Answer

Minimum operating income = Target ROI × Investment = 15% × $400,000 = $60,000.

Question 3

In linear programming for production mix decisions, what does a shadow price (dual value) represent?

Accepted Answer

The increase in objective function value per additional unit of a binding constraint

Answer

A shadow price shows how much the objective function (profit) would improve if one additional unit of a constrained resource became available.

Question 4

Which inventory management model minimizes the total of ordering costs and carrying costs by solving for the optimal order quantity?

Accepted Answer

Economic Order Quantity (EOQ) model

Answer

The EOQ model calculates the order quantity where total ordering cost equals total carrying cost, minimizing total inventory costs.

Question 5

A product line has a contribution margin of $50,000 but causes avoidable fixed costs of $40,000 and unavoidable fixed costs of $30,000. What is the financial impact of dropping this product?

Accepted Answer

Operating income decreases by $10,000

Answer

Dropping the line eliminates the $50,000 CM and $40,000 avoidable costs, for a net loss of $10,000; unavoidable costs remain regardless.

(CIA) Certified Industrial Accountant Practice Test

(CIA) Certified Industrial Accountant Practice Test

CIA Management Accounting 3