CPA CFE Management Accounting 2 — Questions and Answers
Question 1: In a balanced scorecard, which perspective focuses on internal business processes?
- Financial perspective
- Customer perspective
- Internal business process perspective (Correct answer)
- Learning and growth perspective
Correct answer: Internal business process perspective
The internal business process perspective of the balanced scorecard focuses on the critical processes that the organization must excel at to satisfy customers and achieve financial objectives. It includes measures of process efficiency, quality, and cycle time.
Question 2: A company has two products competing for limited machine hours. Which product should be prioritized?
- The product with the highest selling price per unit
- The product with the highest contribution margin per machine hour (Correct answer)
- The product with the lowest variable cost per unit
- The product with the highest total contribution margin per unit
Correct answer: The product with the highest contribution margin per machine hour
When resources are constrained, the optimal decision is to prioritize the product with the highest contribution margin per unit of the constraining resource (machine hour in this case), as this maximizes the total contribution margin generated from the limited capacity.
Question 3: What is the primary difference between absorption costing and variable costing?
- Absorption costing includes only variable costs in product cost
- Variable costing treats fixed manufacturing overhead as a period cost rather than a product cost (Correct answer)
- Absorption costing excludes direct labor from product cost
- Variable costing includes selling expenses in product cost
Correct answer: Variable costing treats fixed manufacturing overhead as a period cost rather than a product cost
Under variable costing, only variable manufacturing costs are included in product cost. Fixed manufacturing overhead is treated as a period cost and expensed in full in the period incurred. Under absorption costing, fixed manufacturing overhead is included in product cost and allocated to units.
Question 4: A company uses the high-low method to estimate costs. What does this method use to separate fixed and variable components?
- Regression analysis with all data points
- The highest and lowest cost observations and their corresponding activity levels (Correct answer)
- Average costs over all periods
- Only the most recent period's data
Correct answer: The highest and lowest cost observations and their corresponding activity levels
The high-low method estimates variable cost per unit by dividing the difference in costs between the highest and lowest activity levels by the difference in activity levels. Fixed cost is then calculated by subtracting total variable cost from total cost at either point.
Question 5: In transfer pricing, what is the minimum transfer price that the selling division should accept?
- The market price of the product
- The variable cost of production plus any opportunity cost of the transfer (Correct answer)
- The full absorption cost plus a profit margin
- The negotiated price agreed upon by both divisions
Correct answer: The variable cost of production plus any opportunity cost of the transfer
The minimum transfer price equals the incremental cost to produce and transfer plus any opportunity cost (contribution margin foregone on external sales displaced by the internal transfer). If the selling division has excess capacity, the opportunity cost is zero.
Question 6: What is the purpose of a rolling forecast (continuous budget)?
- To prepare a one-time annual budget that remains fixed
- To continuously update the budget by adding a new period as each period ends, maintaining a constant planning horizon (Correct answer)
- To prepare budgets only for capital expenditures
- To create a budget that eliminates all variances
Correct answer: To continuously update the budget by adding a new period as each period ends, maintaining a constant planning horizon
A rolling forecast continuously extends the planning horizon by adding a new future period as each current period ends. This keeps the organization always looking ahead a fixed number of periods, providing more up-to-date planning information than a static annual budget.
CPA CFE Management Accounting 2
In a balanced scorecard, which perspective focuses on internal business processes?