Finance for Non-Finance Managers Cost Management 4

Question 1

Which costing approach is most appropriate when a company wants to set a floor price for a special one-time order with spare capacity?

Accepted Answer

Variable (marginal) costing

Answer

Variable costing shows the minimum price needed to cover incremental costs when fixed costs are already covered by existing volume.

Question 2

A cost that has already been incurred and cannot be recovered regardless of future decisions is called a:

Accepted Answer

Sunk cost

Answer

Sunk costs are past expenditures that are irrelevant to future decision-making because they cannot be changed.

Question 3

If a company increases production volume within its relevant range, what happens to the fixed cost per unit?

Accepted Answer

It decreases

Answer

As volume increases, the same total fixed cost is spread over more units, so fixed cost per unit decreases.

Question 4

Which cost classification is most useful for a 'make-or-buy' decision?

Accepted Answer

Differential (incremental) cost

Answer

Make-or-buy decisions require comparing only the costs that differ between the two alternatives — differential costs.

Question 5

Kaizen costing focuses on:

Accepted Answer

Continuous incremental cost reductions during production

Answer

Kaizen costing is a Japanese philosophy of continuous, ongoing cost improvement throughout the production process.

Finance for Non-Finance Managers Practice Test