CAA CAA Cost Accounting & Management 1 — Questions and Answers
Question 1: Which costing method assigns all manufacturing costs (fixed and variable) to products?
- Variable costing
- Absorption costing (Correct answer)
- Direct costing
- Marginal costing
Correct answer: Absorption costing
Absorption costing (full costing) assigns both fixed and variable manufacturing overhead to each unit produced.
Question 2: A company has fixed costs of $120,000 and a contribution margin ratio of 40%. What is its breakeven sales revenue?
- $48,000
- $168,000
- $300,000 (Correct answer)
- $480,000
Correct answer: $300,000
Breakeven sales = Fixed costs ÷ Contribution margin ratio = $120,000 ÷ 0.40 = $300,000.
Question 3: In job-order costing, which document accumulates all costs for a specific job?
- Production order
- Job cost sheet (Correct answer)
- Bill of materials
- Work-in-process ledger
Correct answer: Job cost sheet
A job cost sheet tracks direct materials, direct labor, and applied overhead for each individual job.
Question 4: What is the primary purpose of a standard cost system?
- To record actual costs only
- To set benchmarks for performance measurement and cost control (Correct answer)
- To calculate tax liability
- To determine market prices
Correct answer: To set benchmarks for performance measurement and cost control
Standard costs provide predetermined cost benchmarks against which actual costs are compared to identify variances and control operations.
Question 5: A favorable labor efficiency variance indicates that:
- Workers were paid less than the standard rate
- Fewer labor hours were used than standard hours allowed (Correct answer)
- More labor hours were used than standard hours allowed
- Overhead was under-applied
Correct answer: Fewer labor hours were used than standard hours allowed
A favorable labor efficiency variance means actual hours worked were less than the standard hours allowed for actual output.
Question 6: Which cost behavior pattern remains constant in total regardless of changes in activity level within the relevant range?
- Variable cost
- Mixed cost
- Fixed cost (Correct answer)
- Step cost
Correct answer: Fixed cost
Fixed costs remain constant in total as activity level changes within the relevant range, though fixed cost per unit changes.
CAA CAA Cost Accounting & Management 1
Which costing method assigns all manufacturing costs (fixed and variable) to products?