CPA CPA Cost Accounting & Budgeting 1 — Questions and Answers
Question 1: Which costing method assigns manufacturing overhead to products based on the activities that drive overhead costs?
- Job order costing
- Process costing
- Activity-based costing (ABC) (Correct answer)
- Variable costing
Correct answer: Activity-based costing (ABC)
Activity-based costing (ABC) identifies cost drivers and assigns overhead to products based on the activities consumed, improving accuracy over volume-based methods.
Question 2: In a standard cost system, an unfavorable direct labor efficiency variance indicates:
- Actual labor hours exceeded standard hours allowed for actual output (Correct answer)
- Actual labor rate was higher than the standard rate
- Fewer units were produced than budgeted
- Actual overhead exceeded the applied overhead
Correct answer: Actual labor hours exceeded standard hours allowed for actual output
An unfavorable labor efficiency variance means more actual hours were used than the standard hours allowed for the actual production level achieved.
Question 3: Which of the following costs would be included in a product's cost under absorption costing but NOT under variable costing?
- Direct materials
- Direct labor
- Variable manufacturing overhead
- Fixed manufacturing overhead (Correct answer)
Correct answer: Fixed manufacturing overhead
Absorption costing treats fixed manufacturing overhead as a product cost, while variable costing treats it as a period cost expensed immediately.
Question 4: A company uses a flexible budget. If actual output is higher than budgeted, the flexible budget will show:
- The same costs as the static budget
- Higher variable costs but the same fixed costs (Correct answer)
- Lower variable costs and lower fixed costs
- Higher fixed costs proportional to output
Correct answer: Higher variable costs but the same fixed costs
A flexible budget adjusts variable costs proportionally to actual output while keeping budgeted fixed costs constant.
Question 5: The contribution margin ratio is calculated as:
- Net income divided by total revenue
- Gross profit divided by total revenue
- Contribution margin divided by sales revenue (Correct answer)
- Operating income divided by variable costs
Correct answer: Contribution margin divided by sales revenue
The contribution margin ratio equals contribution margin (sales minus variable costs) divided by sales revenue, showing what percentage of each sales dollar covers fixed costs and profit.
Question 6: Under job order costing, which document accumulates all costs (direct materials, direct labor, and overhead) for a specific job?
- Cost of production report
- Job cost sheet (Correct answer)
- Materials requisition form
- Work-in-process ledger summary
Correct answer: Job cost sheet
The job cost sheet is the primary document that accumulates direct materials, direct labor, and applied overhead for each specific job order.
CPA CPA Cost Accounting & Budgeting 1
Which costing method assigns manufacturing overhead to products based on the activities that drive overhead costs?