IAB Management Accounting & Analysis 2 — Questions and Answers
Question 1: A company has fixed costs of $120,000 and a contribution margin ratio of 40%. What is the break-even point in sales dollars?
- $300,000 (Correct answer)
- $48,000
- $168,000
- $200,000
Correct answer: $300,000
Break-even sales = Fixed costs ÷ Contribution margin ratio = $120,000 ÷ 0.40 = $300,000.
Question 2: Which costing method assigns only variable manufacturing costs to products and treats fixed overhead as a period cost?
- Absorption costing
- Variable (direct) costing (Correct answer)
- Activity-based costing
- Job-order costing
Correct answer: Variable (direct) costing
Variable (direct) costing excludes fixed manufacturing overhead from product cost, expensing it in the period incurred.
Question 3: In a standard costing system, a favorable material price variance occurs when:
- Actual quantity used exceeds standard quantity
- Actual price paid is less than the standard price (Correct answer)
- Standard price exceeds actual quantity purchased
- Actual labor hours exceed standard hours
Correct answer: Actual price paid is less than the standard price
Material price variance = (Standard price − Actual price) × Actual quantity; a favorable result means actual price was lower.
Question 4: What does a negative operating leverage indicate about a company's cost structure?
- Variable costs dominate, so profits rise steeply with sales
- Fixed costs dominate, amplifying losses when sales decline (Correct answer)
- The company has no fixed costs
- The degree of operating leverage cannot be negative
Correct answer: Fixed costs dominate, amplifying losses when sales decline
High fixed costs create high operating leverage; when sales fall below break-even, losses are magnified, effectively a negative impact.
Question 5: Which of the following is NOT a characteristic of a responsibility center?
- It has a designated manager accountable for its results
- Performance is measured against a budget or standard
- It always generates external revenue (Correct answer)
- It can be a cost, profit, or investment center
Correct answer: It always generates external revenue
A cost center, for example, does not generate external revenue; only profit and investment centers require revenue measurement.
Question 6: A company is evaluating a special order at a price below its normal selling price. Which cost is MOST relevant to this decision?
- Allocated fixed overhead
- Historical sunk costs
- Variable production cost per unit (Correct answer)
- Depreciation on existing equipment
Correct answer: Variable production cost per unit
For special orders, variable costs are relevant because they represent incremental costs; fixed overhead already incurred is not.
Question 7: The balanced scorecard typically includes which four perspectives?
- Financial, Customer, Internal Process, Learning & Growth (Correct answer)
- Revenue, Profit, Market Share, Productivity
- Input, Process, Output, Outcome
- Strategic, Operational, Tactical, Functional
Correct answer: Financial, Customer, Internal Process, Learning & Growth
Kaplan and Norton's balanced scorecard links financial performance with customer satisfaction, internal processes, and organizational learning.
IAB Management Accounting & Analysis 2
A company has fixed costs of $120,000 and a contribution margin ratio of 40%.
What is the break-even point in sales dollars?