CPP Costing Methods & Profitability 3

Question 1

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?

Accepted Answer

Product B, because it has a higher contribution margin per machine hour

Answer

Product B generates $30/hour versus Product A's $20/hour ($40/2 hours), so Product B maximizes contribution per constrained resource.

Question 2

Standard costing produces a favorable materials price variance. What does this indicate?

Accepted Answer

Actual material cost was less than the standard cost

Answer

A favorable materials price variance means the company paid less per unit of material than the standard price allowed.

Question 3

In the context of cost-volume-profit analysis, 'operating leverage' is best described as:

Accepted Answer

The degree to which a firm uses fixed costs in its cost structure

Answer

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.

Question 4

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?

Accepted Answer

$80

Answer

NRV = Final selling price minus separable costs after the split-off point = $100 - $20 = $80.

Question 5

Which statement best describes 'sunk costs' in pricing and profitability decisions?

Accepted Answer

Costs already incurred that cannot be recovered and are irrelevant to future decisions

Answer

Sunk costs have already been incurred and cannot be changed by any future decision, making them irrelevant to forward-looking pricing and investment choices.

(CPP) Certified Pricing Professional Practice Test

(CPP) Certified Pricing Professional Practice Test

CPP Costing Methods & Profitability 3