CPA CFE Management Accounting 4 — Questions and Answers
Question 1: What is the difference between a static budget variance and a flexible budget variance?
- There is no difference; they are identical
- A static budget variance compares actual to original budget; a flexible budget variance compares actual to a budget adjusted for actual volume (Correct answer)
- A flexible budget variance only measures price changes
- A static budget variance only applies to variable costs
Correct answer: A static budget variance compares actual to original budget; a flexible budget variance compares actual to a budget adjusted for actual volume
The static budget variance compares actual results to the original budget at the planned activity level. The flexible budget variance isolates spending and efficiency differences by comparing actual results to what the budget would have been at the actual activity level achieved.
Question 2: In a process costing system, how are equivalent units calculated under the weighted average method?
- Units completed plus equivalent units in ending work in process, without regard to beginning inventory completion (Correct answer)
- Only units started and completed during the period
- Units completed minus units in beginning work in process
- Total units started during the period regardless of completion
Correct answer: Units completed plus equivalent units in ending work in process, without regard to beginning inventory completion
Under the weighted average method, equivalent units equal units completed and transferred out plus the equivalent units in ending work in process (ending WIP units × percentage complete). Work done in prior periods on beginning WIP is blended with current period work.
Question 3: A company uses kaizen costing. How does this approach differ from standard costing?
- Kaizen costing sets fixed standards that remain unchanged
- Kaizen costing targets continuous incremental cost reductions during the production phase (Correct answer)
- Kaizen costing is only used during the product design phase
- Kaizen costing ignores variable costs
Correct answer: Kaizen costing targets continuous incremental cost reductions during the production phase
Kaizen costing focuses on continuous improvement during the manufacturing phase by setting progressively tighter cost reduction targets. Unlike standard costing which measures performance against fixed standards, kaizen costing expects standards to improve over time.
Question 4: What is throughput accounting's definition of throughput?
- Total revenue minus all operating expenses
- Sales revenue minus totally variable costs (primarily direct materials) (Correct answer)
- Gross margin minus administrative expenses
- Net income plus depreciation
Correct answer: Sales revenue minus totally variable costs (primarily direct materials)
In throughput accounting (based on TOC), throughput is defined as sales revenue minus totally variable costs, which typically includes only direct materials. Labor and overhead are considered fixed in the short term and are classified as operating expense.
Question 5: Which variance measures the difference between actual fixed overhead incurred and the budgeted fixed overhead?
- Fixed overhead volume variance
- Fixed overhead spending (budget) variance (Correct answer)
- Variable overhead efficiency variance
- Sales volume variance
Correct answer: Fixed overhead spending (budget) variance
The fixed overhead spending (budget) variance is the difference between actual fixed overhead incurred and the budgeted (static) fixed overhead. It identifies whether the company spent more or less on fixed overhead than planned, regardless of production volume.
Question 6: A company is evaluating whether to continue or drop a product line. The product line has a negative operating income after allocating common fixed costs. The product should be dropped only if:
- Its operating income is negative after allocated common costs
- Its contribution margin is negative or less than the avoidable fixed costs attributable to it (Correct answer)
- Its sales are declining year over year
- Its variable costs exceed industry average
Correct answer: Its contribution margin is negative or less than the avoidable fixed costs attributable to it
A product line should be dropped only if its segment margin (contribution margin minus avoidable fixed costs) is negative. Allocated common fixed costs are irrelevant because they will continue regardless. If the product's contribution margin exceeds its avoidable fixed costs, keeping it is beneficial.
CPA CFE Management Accounting 4
What is the difference between a static budget variance and a flexible budget variance?