IAB Management Accounting & Analysis 2

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?

Accepted Answer

$300,000

Answer

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?

Accepted Answer

Variable (direct) costing

Answer

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:

Accepted Answer

Actual price paid is less than the standard price

Answer

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?

Accepted Answer

Fixed costs dominate, amplifying losses when sales decline

Answer

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?

Accepted Answer

It always generates external revenue

Answer

A cost center, for example, does not generate external revenue; only profit and investment centers require revenue measurement.

(IAB) International Association of Bookkeepers Certification Practice Test