FAC Finance and Accounting Budgeting & Cost Management 3

Question 1

A company's labor efficiency variance is $15,000 unfavorable. This means:

Accepted Answer

More labor hours were used than the standard hours allowed for actual output

Answer

An unfavorable labor efficiency variance indicates that actual hours worked exceeded the standard hours allowed for the units actually produced.

Question 2

Target costing is best described as:

Accepted Answer

Subtracting desired profit from market price to determine an allowable cost

Answer

Target costing works backward from a competitive market price, deducting the required profit margin to arrive at the maximum allowable cost.

Question 3

In responsibility accounting, a profit center is distinguished from a cost center in that a profit center manager is responsible for:

Accepted Answer

Both revenues and costs, and therefore profitability

Answer

A profit center manager controls both revenues and costs, whereas a cost center manager is only accountable for costs.

Question 4

Which costing method is MOST appropriate when a firm wants to understand the long-run cost of sustaining each product line, including batch-level and product-sustaining costs?

Accepted Answer

Activity-based costing (ABC)

Answer

ABC assigns costs to products using multiple cost drivers at different levels (unit, batch, product, facility), providing a more accurate long-run cost picture.

Question 5

A budget that considers the time value of money and discounts expected future cash flows is most commonly used in:

Accepted Answer

Capital expenditure budgeting

Answer

Capital expenditure budgets evaluate long-term investments using discounted cash flow techniques such as NPV and IRR.

(FAC) Finance and Accounting Certification Practice Test

(FAC) Finance and Accounting Certification Practice Test

FAC Finance and Accounting Budgeting & Cost Management 3