FAC FAC Managerial Accounting & Cost Concepts 2

Question 1

Which inventory costing method results in the highest net income during a period of rising prices?

Accepted Answer

FIFO

Answer

FIFO assigns the oldest (lower) costs to cost of goods sold during inflation, resulting in lower COGS and higher net income.

Question 2

Process costing is most appropriate for companies that manufacture which type of product?

Accepted Answer

Homogeneous products in continuous production

Answer

Process costing is used for identical products made in a continuous or mass production process, such as paint or chemicals.

Question 3

What is the purpose of calculating equivalent units of production in process costing?

Accepted Answer

To assign costs to partially and fully completed units on an equal basis

Answer

Equivalent units convert partially completed units into whole-unit equivalents so that accurate cost per unit can be calculated.

Question 4

Which cost concept represents the benefit foregone by choosing one alternative over the next best alternative?

Accepted Answer

Opportunity cost

Answer

Opportunity cost is the potential benefit sacrificed when one alternative is selected over the next best option.

Question 5

The predetermined overhead rate is calculated by dividing which two figures?

Accepted Answer

Estimated overhead by estimated activity

Answer

The predetermined overhead rate is calculated before the period begins using estimated total overhead divided by estimated total activity.

(FAC) Finance and Accounting Certification Practice Test