CPFM Cost Management and Analysis 2 — Questions and Answers
Question 1: A company allocates fixed manufacturing overhead based on machine hours. If actual production exceeds the budgeted level, what is the most likely overhead variance result?
- Favorable volume variance (Correct answer)
- Unfavorable volume variance
- Zero spending variance
- Unfavorable efficiency variance
Correct answer: Favorable volume variance
Producing more units than budgeted over-absorbs fixed overhead, creating a favorable volume variance.
Question 2: Which costing method assigns overhead to products based on the activities that drive costs?
- Job-order costing
- Process costing
- Activity-based costing (Correct answer)
- Standard costing
Correct answer: Activity-based costing
Activity-based costing traces overhead through cost drivers tied to specific activities.
Question 3: A relevant cost for a decision must be:
- Already incurred and unrecoverable
- Future-oriented and differs between alternatives (Correct answer)
- Allocated equally to all products
- Recorded in the general ledger
Correct answer: Future-oriented and differs between alternatives
Relevant costs are future costs that differ among the options being considered.
Question 4: What does the contribution margin represent?
- Sales revenue minus fixed costs
- Sales revenue minus variable costs (Correct answer)
- Net income after taxes
- Gross profit minus depreciation
Correct answer: Sales revenue minus variable costs
Contribution margin is sales revenue less variable costs, available to cover fixed costs and profit.
Question 5: In a make-or-buy decision, which cost should generally be ignored?
- Avoidable variable production costs
- Unavoidable allocated fixed overhead (Correct answer)
- The supplier's purchase price
- Opportunity cost of freed capacity
Correct answer: Unavoidable allocated fixed overhead
Unavoidable fixed overhead continues regardless of the decision, so it is irrelevant.
Question 6: The high-low method is used primarily to:
- Allocate joint costs
- Separate mixed costs into fixed and variable components (Correct answer)
- Calculate the breakeven point
- Determine transfer prices
Correct answer: Separate mixed costs into fixed and variable components
The high-low method estimates variable and fixed cost elements from the highest and lowest activity levels.
Question 7: A favorable direct materials price variance combined with an unfavorable quantity variance might indicate:
- Purchasing low-quality materials that caused waste (Correct answer)
- Overpaying for premium materials
- Efficient use of standard materials
- An error in labor rates
Correct answer: Purchasing low-quality materials that caused waste
Cheaper materials may save on price but cause excess usage, producing an unfavorable quantity variance.
CPFM Cost Management and Analysis 2
A company allocates fixed manufacturing overhead based on machine hours.
If actual production exceeds the budgeted level, what is the most likely overhead variance result?