Finance for Non-Finance Managers Cost Management 3

Question 1

Activity-Based Costing (ABC) differs from traditional costing primarily because it:

Accepted Answer

Uses multiple cost drivers to assign overhead more accurately

Answer

ABC uses activity-specific cost drivers for each cost pool, resulting in more accurate product costing than single-rate methods.

Question 2

A company has contribution margin of $200,000 and fixed costs of $150,000. What is operating income?

Accepted Answer

$50,000

Answer

Operating income = Contribution margin - Fixed costs = $200,000 - $150,000 = $50,000.

Question 3

Which of the following is an example of an opportunity cost?

Accepted Answer

Revenue foregone by not renting unused space

Answer

Opportunity cost is the value of the best alternative forgone, such as rental income given up by using space internally.

Question 4

Target costing starts with:

Accepted Answer

The market price minus the desired profit margin

Answer

Target costing = Market price - Desired profit; the company then designs to meet this cost target.

Question 5

The difference between standard cost and actual cost is called a:

Accepted Answer

Variance

Answer

A variance is the deviation between what was budgeted (standard) and what actually occurred.

Finance for Non-Finance Managers Practice Test