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web.groovymark@gmail.com
- December 8, 2024
Question 01
What is a common basis for allocating manufacturing overhead in a traditional costing system?
a) Number of units produced
b) Direct labor hours
c) Direct materials used
d) Sales volume
Answer: b) Direct labor hours
Explanation: In traditional costing systems, manufacturing overhead is typically allocated based on direct labor hours as it is an easily measurable activity that relates to production.
Question 02
In an activity-based costing system, what are the factors that cause overhead costs called?
a) Cost objects
b) Cost drivers
c) Cost pools
d) Conversion costs
Answer: b) Cost drivers
Explanation: Cost drivers in ABC systems represent the activities that cause costs to be incurred, which helps to allocate overhead more precisely compared to traditional methods.
Question 03
What does activity-based costing (ABC) take into account that traditional costing does not?
a) Only direct labor
b) Both direct and indirect costs
c) Non-manufacturing costs
d) Only conversion costs
Answer: c) Non-manufacturing costs
Explanation: ABC systems allocate costs related to both manufacturing and non-manufacturing activities, allowing for a more comprehensive understanding of product costs.
Question 04
How is overhead applied in an ABC system?
a) Based on a single measure of activity
b) Equally among all products
c) Using multiple cost drivers
d) Based on material cost
Answer: c) Using multiple cost drivers
Explanation: ABC uses multiple cost drivers, each related to different activities, to allocate overhead more accurately, as opposed to traditional methods that use a single cost driver.
Question 05
In a CVP graph, what does the vertical intercept of the total cost line represent?
a) Total fixed costs
b) Total variable costs
c) Total contribution margin
d) Sales revenue
Answer: a) Total fixed costs
Explanation: The vertical intercept on the CVP graph represents total fixed costs, as these are the costs incurred even if no units are produced.
Question 06
Which costs are included in the calculation of conversion costs?
a) Direct materials and direct labor
b) Manufacturing overhead and direct labor
c) Direct materials and indirect labor
d) Manufacturing overhead and direct materials
Answer: b) Manufacturing overhead and direct labor
Explanation: Conversion costs include direct labor and manufacturing overhead, as these are the costs needed to convert raw materials into finished products.
Question 07
What does “margin of safety” represent in CVP analysis?
a) The percentage of sales above breakeven
b) The contribution margin per unit
c) Total fixed costs
d) The break-even point
Answer: a) The percentage of sales above breakeven
Explanation: Margin of safety shows how much sales can drop before the company reaches its breakeven point, which is a measure of risk.
Question 08
Which account is credited when manufacturing overhead is applied to Work-in-Process?
a) Raw materials inventory
b) Work-in-process inventory
c) Finished goods inventory
d) Manufacturing overhead
Answer: d) Manufacturing overhead
Explanation: When manufacturing overhead is applied, the manufacturing overhead account is credited, reducing the balance of overhead to be applied.
Question 09
What is the formula for calculating contribution margin?
a) Sales revenue minus variable costs
b) Fixed costs minus variable costs
c) Sales revenue divided by fixed costs
d) Total costs minus sales revenue
Answer: a) Sales revenue minus variable costs
Explanation: Contribution margin is the amount remaining from sales after variable costs are subtracted, which can be used to cover fixed costs.
Question 10
What is the definition of break-even sales in units?
a) Total fixed costs divided by contribution margin per unit
b) Sales price per unit multiplied by total units
c) Total fixed costs multiplied by total units sold
d) Total sales revenue divided by variable cost per unit
Answer: a) Total fixed costs divided by contribution margin per unit
Explanation: The break-even point in units is the number of units that must be sold to cover fixed costs, calculated by dividing fixed costs by the contribution margin per unit.
Question 11
Which type of costing method is most appropriate for industries with identical or homogenous products?
a) Job order costing
b) Process costing
c) Activity-based costing
d) Absorption costing
Answer: b) Process costing
Explanation: Process costing is used in industries where identical products are produced in large quantities and costs are assigned evenly across all units.
Question 12
What is the primary difference between job order costing and process costing?
a) Process costing tracks costs for each individual job.
b) Job order costing averages costs over all units produced.
c) Process costing averages costs over a continuous flow of units.
d) Job order costing is only used for large production runs.
Answer: c) Process costing averages costs over a continuous flow of units.
Explanation: Process costing assigns costs to a continuous flow of identical units, while job order costing assigns costs to individual, distinct jobs.
Question 13
Which of the following is considered a facility-level cost in an ABC system?
a) Direct labor
b) Machine setup
c) Factory security
d) Quality inspections
Answer: c) Factory security
Explanation: Facility-level costs are costs incurred to maintain the entire production facility, regardless of the number of units produced.
Question 14
What is the cost object in an activity-based costing system?
a) A product or service
b) Overhead
c) Direct labor
d) Fixed costs
Answer: a) A product or service
Explanation: The cost object in ABC is the product or service that is being measured for cost allocation based on activities performed.
Question 15
Which cost is considered a direct cost in a manufacturing environment?
a) Factory rent
b) Indirect labor
c) Direct materials
d) Utilities
Answer: c) Direct materials
Explanation: Direct materials are those that can be directly traced to the production of a product, unlike indirect costs such as utilities or rent.
Question 16
What is the purpose of cost drivers in an ABC system?
a) To allocate direct materials
b) To allocate direct labor
c) To allocate overhead costs
d) To allocate selling expenses
Answer: c) To allocate overhead costs
Explanation: Cost drivers in an ABC system are used to allocate overhead costs based on the activities that drive the cost.
Question 17
Which of the following statements is true regarding activity-based costing?
a) It assigns all overhead costs equally across all products.
b) It considers only direct costs when assigning overhead.
c) It assigns overhead based on actual activities performed.
d) It does not account for non-manufacturing costs.
Answer: c) It assigns overhead based on actual activities performed.
Explanation: ABC assigns overhead based on the specific activities that are required to produce each product, making the allocation more accurate.
Question 18
What is the predetermined overhead rate formula?
a) Estimated manufacturing overhead divided by expected sales
b) Actual manufacturing overhead divided by actual machine hours
c) Estimated manufacturing overhead divided by expected operating activity
d) Actual manufacturing overhead divided by estimated machine hours
Answer: c) Estimated manufacturing overhead divided by expected operating activity
Explanation: The predetermined overhead rate is calculated by dividing estimated manufacturing overhead by the expected level of activity (such as labor hours or machine hours).
Question 19
What type of costing system would be appropriate for a company producing custom furniture?
a) Job order costing
b) Process costing
c) Standard costing
d) Variable costing
Answer: a) Job order costing
Explanation: Job order costing is appropriate for industries where products are custom-made or produced in small batches, such as custom furniture.
Question 20
How are overhead costs treated in an activity-based costing system?
a) They are applied based on a single cost driver.
b) They are ignored in cost allocation.
c) They are allocated based on multiple cost drivers.
d) They are allocated only to direct materials.
Answer: c) They are allocated based on multiple cost drivers.
Explanation: ABC allocates overhead using multiple cost drivers, which relate to different activities that incur costs.
