Management Accounting Flashcards

A company uses activity-based costing (ABC). Which of the following best describes a cost driver in an ABC system?

Answer: A factor that causes a change in the cost of an activity

In ABC, a cost driver is a factor that causes or drives the cost of an activity. Examples include number of machine setups, purchase orders, or inspection hours. The cost driver is the basis used to assign activity costs to cost objects.

What is the primary purpose of a flexible budget?

Answer: To adjust budgeted amounts for the actual level of activity achieved

A flexible budget adjusts budgeted revenues and costs for the actual level of output or activity achieved. This allows meaningful comparison of actual results against what should have been expected at that volume level, isolating efficiency and spending variances.

In a standard costing system, a favorable labor efficiency variance indicates that:

Answer: Fewer labor hours were used than standard for the actual output

A favorable labor efficiency variance means that actual hours worked were less than the standard hours allowed for the actual output achieved. It measures the productivity of labor, not the wage rate paid.

Which of the following is a characteristic of a relevant cost for decision-making purposes?

Answer: It is a future cost that differs between decision alternatives

Relevant costs for decision-making are future costs that differ between alternatives. Sunk costs (already incurred) and costs that do not change between alternatives are irrelevant and should be excluded from the analysis.

A company is operating below capacity and receives a special order at a price below normal selling price. The order should be accepted if:

Answer: The special order price exceeds the variable cost per unit and no other qualitative factors override

When a company has excess capacity, a special order should generally be accepted if the price exceeds the incremental (variable) cost per unit, as this contributes to covering fixed costs and generating additional profit, assuming no negative qualitative impacts.

What does the contribution margin ratio represent?

Answer: The percentage of each sales dollar available to cover fixed costs and generate profit

The contribution margin ratio is contribution margin divided by sales revenue. It represents the percentage of each sales dollar that remains after covering variable costs and is available to cover fixed costs and contribute to profit.