CPP Costing Methods & Profitability 2

Question 1

A manufacturer uses Activity-Based Costing (ABC) and identifies that its 'order processing' activity costs $500,000 annually with 10,000 orders processed. What is the cost driver rate?

Accepted Answer

$50 per order

Answer

$500,000 divided by 10,000 orders equals $50 per order as the cost driver rate.

Question 2

Which costing method is most susceptible to producing misleading profitability information when product mix changes significantly?

Accepted Answer

Traditional volume-based absorption costing

Answer

Traditional volume-based absorption costing distorts product costs when product mix shifts because it allocates overhead based on a single volume driver like labor hours.

Question 3

A company's fixed costs are $200,000, variable cost per unit is $30, and selling price is $50. At what sales volume does the company break even?

Accepted Answer

10,000 units

Answer

Break-even = Fixed Costs / Contribution Margin per unit = $200,000 / ($50 - $30) = 10,000 units.

Question 4

Under throughput accounting, which cost is treated as a period expense rather than a product cost?

Accepted Answer

All operating expenses except direct materials

Answer

Throughput accounting treats all operating expenses except direct materials as period costs, focusing only on materials as the true variable cost.

Question 5

When a company switches from FIFO to LIFO inventory costing during a period of rising prices, what is the expected effect on reported profitability?

Accepted Answer

Profitability decreases because COGS increases

Answer

Under LIFO in rising price environments, the most recently purchased (higher-cost) inventory is expensed first, increasing COGS and decreasing reported profit.

(CPP) Certified Pricing Professional Practice Test

(CPP) Certified Pricing Professional Practice Test

CPP Costing Methods & Profitability 2