CPFM Cost Management and Analysis 3 — Questions and Answers
Question 1: What is the breakeven point in units if fixed costs are $50,000, price is $25, and variable cost per unit is $15?
- 2,000 units
- 3,333 units
- 5,000 units (Correct answer)
- 10,000 units
Correct answer: 5,000 units
Breakeven = $50,000 / ($25 - $15) = 5,000 units.
Question 2: Joint costs incurred before the split-off point should be allocated to joint products primarily for:
- Deciding whether to process further
- Inventory valuation and financial reporting (Correct answer)
- Setting individual product prices
- Evaluating sell-or-process decisions
Correct answer: Inventory valuation and financial reporting
Joint cost allocation matters for inventory valuation, not for incremental processing decisions.
Question 3: A cost that remains constant per unit but varies in total with activity is a:
- Fixed cost
- Variable cost (Correct answer)
- Step cost
- Mixed cost
Correct answer: Variable cost
Variable costs are constant per unit and change proportionally in total with activity.
Question 4: Target costing begins with which value?
- Total manufacturing cost
- Desired market price (Correct answer)
- Standard overhead rate
- Historical actual cost
Correct answer: Desired market price
Target costing starts from a competitive market price and works backward to allowable cost.
Question 5: The degree of operating leverage measures:
- Debt relative to equity
- Sensitivity of operating income to changes in sales (Correct answer)
- Interest coverage ability
- Return on invested capital
Correct answer: Sensitivity of operating income to changes in sales
Operating leverage shows how a percentage change in sales magnifies the change in operating income.
Question 6: Which variance compares the actual hours worked at the standard rate to the standard hours allowed at the standard rate?
- Labor rate variance
- Labor efficiency variance (Correct answer)
- Material price variance
- Overhead spending variance
Correct answer: Labor efficiency variance
The labor efficiency variance isolates differences in hours used, valued at the standard rate.
Question 7: A sunk cost is best described as a cost that:
- Will be incurred in the future
- Has already been incurred and cannot be changed (Correct answer)
- Varies with production volume
- Can be avoided by a decision
Correct answer: Has already been incurred and cannot be changed
Sunk costs are past expenditures that no current decision can alter.
CPFM Cost Management and Analysis 3
What is the breakeven point in units if fixed costs are $50,000, price is $25, and variable cost per unit is $15?