QFC Cost Accounting & Management 2 — Questions and Answers
Question 1: A company uses a job-order costing system. Actual overhead incurred was $480,000 and applied overhead was $450,000. How should the $30,000 difference be treated?
- Credit Cost of Goods Sold
- Debit Cost of Goods Sold (Correct answer)
- Capitalize to Work-in-Process
- Defer to next period
Correct answer: Debit Cost of Goods Sold
Under-applied overhead (actual > applied) is typically closed by debiting Cost of Goods Sold, increasing expense.
Question 2: Which costing method assigns both variable and fixed manufacturing costs to products?
- Variable costing
- Absorption costing (Correct answer)
- Throughput costing
- Marginal costing
Correct answer: Absorption costing
Absorption (full) costing includes all manufacturing costs—variable and fixed—in the product cost.
Question 3: A firm's relevant range is 5,000–10,000 units. Fixed costs total $60,000 within this range. If output rises to 12,000 units, what is most likely true?
- Fixed costs remain $60,000
- Fixed costs decrease proportionally
- Fixed costs may step up to a new level (Correct answer)
- Variable costs become fixed
Correct answer: Fixed costs may step up to a new level
Outside the relevant range, fixed costs can step up as additional capacity resources (equipment, supervisors) are required.
Question 4: The economic order quantity (EOQ) model minimizes which combination of costs?
- Carrying costs and stockout costs
- Ordering costs and carrying costs (Correct answer)
- Purchase price and ordering costs
- Stockout costs and purchase price
Correct answer: Ordering costs and carrying costs
EOQ minimizes total inventory cost by balancing ordering costs (decrease with larger orders) and carrying costs (increase with larger orders).
Question 5: Under standard costing, a favorable material price variance occurs when:
- Actual quantity used exceeds standard quantity
- Actual price paid is less than standard price (Correct answer)
- Standard quantity exceeds actual quantity used
- Actual price exceeds standard price
Correct answer: Actual price paid is less than standard price
Material price variance = (Standard Price − Actual Price) × Actual Quantity; a positive result is favorable.
Question 6: In a process costing system using the weighted-average method, equivalent units for conversion costs are calculated by:
- Units completed + (ending WIP × % complete) (Correct answer)
- Units started + beginning WIP equivalent units
- Units completed only
- Beginning WIP + units started − ending WIP
Correct answer: Units completed + (ending WIP × % complete)
Weighted-average equivalent units = fully completed units + (ending WIP units × percentage of completion for conversion).
Question 7: A company's margin of safety ratio is 25%. This means:
- Variable costs are 25% of sales
- Sales can drop 25% before reaching the break-even point (Correct answer)
- Fixed costs are 25% of contribution margin
- The company earns 25% net profit on sales
Correct answer: Sales can drop 25% before reaching the break-even point
Margin of safety ratio = (Actual Sales − Break-Even Sales) / Actual Sales; a 25% ratio means a 25% revenue decline is tolerable before losses begin.
QFC Cost Accounting & Management 2
A company uses a job-order costing system.
Actual overhead incurred was $480,000 and applied overhead was $450,000.
How should the $30,000 difference be treated?