Costing Methods & Profitability Flashcards
7 cards from real CPP practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Costing Methods & Profitability flashcards as text
A company produces two products using the same machine. Product A has a contribution margin of $40 and requires 2 machine hours; Product B has a contribution margin of $30 and requires 1 machine hour. Which product should be prioritized when machine time is the constraint?
Answer: Product B, because it has a higher contribution margin per machine hour
Product B generates $30/hour versus Product A's $20/hour ($40/2 hours), so Product B maximizes contribution per constrained resource.
Standard costing produces a favorable materials price variance. What does this indicate?
Answer: Actual material cost was less than the standard cost
A favorable materials price variance means the company paid less per unit of material than the standard price allowed.
In the context of cost-volume-profit analysis, 'operating leverage' is best described as:
Answer: The degree to which a firm uses fixed costs in its cost structure
Operating leverage refers to the proportion of fixed costs in a company's cost structure, which amplifies the effect of revenue changes on operating income.
A company allocates joint costs using the Net Realizable Value (NRV) method. Product X has a final selling price of $100 and $20 of separable processing costs; Product Y has a selling price of $60 and $10 of separable processing costs. What NRV does Product X contribute for allocation purposes?
Answer: $80
NRV = Final selling price minus separable costs after the split-off point = $100 - $20 = $80.
Which statement best describes 'sunk costs' in pricing and profitability decisions?
Answer: Costs already incurred that cannot be recovered and are irrelevant to future decisions
Sunk costs have already been incurred and cannot be changed by any future decision, making them irrelevant to forward-looking pricing and investment choices.
A retailer calculates its 'gross margin return on inventory investment' (GMROII). What does a GMROII of 3.0 mean?
Answer: The company earned $3.00 in gross margin for every $1.00 invested in inventory
GMROII of 3.0 means the retailer generates $3.00 of gross margin for each dollar invested in average inventory, combining margin and turnover efficiency.
When performing a 'make vs. buy' analysis, which of the following costs should be included as relevant?
Answer: Variable production costs that would be eliminated if outsourced
Variable production costs that disappear if the product is outsourced are avoidable and therefore relevant to the make vs. buy decision.