CPA CFE Management Accounting

Question 1

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

Accepted Answer

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

Answer

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.

Question 2

What is the primary purpose of a flexible budget?

Accepted Answer

To adjust budgeted amounts for the actual level of activity achieved

Answer

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.

Question 3

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

Accepted Answer

Fewer labor hours were used than standard for the actual output

Answer

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.

Question 4

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

Accepted Answer

It is a future cost that differs between decision alternatives

Answer

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.

Question 5

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

Accepted Answer

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

Answer

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.

CPA CFE Practice Test

CPA CFE Practice Test

CPA CFE Management Accounting