CPA Management Accounting & Strategy 3 — Questions and Answers
Question 1: Which budgeting approach requires managers to justify all expenditures from a zero base each period rather than using prior-year figures?
- Rolling budget
- Flexible budget
- Zero-based budgeting (Correct answer)
- Kaizen budgeting
Correct answer: Zero-based budgeting
Zero-based budgeting (ZBB) requires justifying every line item anew each period, eliminating the automatic carry-forward of prior spending.
Question 2: A company's degree of operating leverage (DOL) is 4. If sales increase by 10%, operating income will increase by:
- 4%
- 10%
- 40% (Correct answer)
- 14%
Correct answer: 40%
DOL multiplies the percentage change in sales to determine the percentage change in operating income: 4 × 10% = 40%.
Question 3: Porter's Five Forces model identifies which factor as a force that can reduce industry profitability by enabling buyers to demand lower prices?
- Threat of new entrants
- Bargaining power of buyers (Correct answer)
- Intensity of rivalry
- Threat of substitutes
Correct answer: Bargaining power of buyers
Bargaining power of buyers is high when buyers are concentrated, purchase large volumes, or can easily switch suppliers, pressuring prices down.
Question 4: A responsibility center where a manager is evaluated on both revenues generated and costs incurred is called a:
- Cost center
- Revenue center
- Profit center (Correct answer)
- Investment center
Correct answer: Profit center
A profit center manager controls both revenues and costs but not the capital invested in the center.
Question 5: Which inventory management technique aims to minimize holding costs by receiving goods just as they are needed in production?
- Economic order quantity (EOQ)
- Just-in-time (JIT) (Correct answer)
- ABC analysis
- Materials requirements planning (MRP)
Correct answer: Just-in-time (JIT)
JIT inventory minimizes holding costs by coordinating deliveries to arrive precisely when needed, reducing on-hand inventory levels.
Question 6: The value chain concept in strategic management refers to:
- The chain of custody for financial reporting
- The sequence of activities that create and deliver value to customers (Correct answer)
- The hierarchy of management control systems
- The linkage between cost drivers and overhead pools
Correct answer: The sequence of activities that create and deliver value to customers
Porter's value chain describes the sequential primary and support activities a firm performs to create value that exceeds the cost of those activities.
Question 7: A company evaluating a special order should accept it if the order's selling price exceeds:
- Full absorption cost per unit
- Standard cost per unit
- Incremental (variable) cost per unit (Correct answer)
- Target cost per unit
Correct answer: Incremental (variable) cost per unit
For a special order with unused capacity, the minimum acceptable price covers incremental costs; any price above that contributes to profit.
CPA Management Accounting & Strategy 3
Which budgeting approach requires managers to justify all expenditures from a zero base each period rather than using prior-year figures?