Cost Accounting and Budgeting Flashcards
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Read the first 7 Cost Accounting and Budgeting flashcards as text
A company has operating income of $50,000 and contribution margin of $200,000. What is its degree of operating leverage (DOL)?
Answer: 4.0
Degree of operating leverage = Contribution margin ÷ Operating income = $200,000 ÷ $50,000 = 4.0.
Joint costs in a production process are best described as:
Answer: Costs shared by two or more products produced simultaneously up to the split-off point
Joint costs are common manufacturing costs incurred in producing two or more products simultaneously up to the split-off point where they become separately identifiable.
Which method of allocating joint costs uses the relative sales value of each product at the split-off point?
Answer: Sales value at split-off method
The sales value at split-off method allocates joint costs based on the proportional market value of each joint product at the point where they separate.
What is the primary purpose of a cash budget?
Answer: To plan and control cash inflows and outflows to ensure liquidity
The cash budget helps management plan cash receipts and disbursements to ensure the business has sufficient liquidity to meet obligations.
A company uses a predetermined overhead rate. If actual overhead exceeds applied overhead, the difference is called:
Answer: Underapplied overhead
When actual overhead costs exceed the overhead applied to production using the predetermined rate, the result is underapplied overhead.
Which of the following best describes participative (bottom-up) budgeting?
Answer: Lower-level managers contribute to and help set their own budget targets
Participative budgeting involves lower-level managers in the budget preparation process, which typically improves motivation and the accuracy of budget estimates.
Which of the following statements about byproducts is correct?
Answer: Byproducts are typically assigned zero or minimal joint cost allocation
Byproducts have relatively minor sales value compared to main products and are typically assigned zero joint cost or only a small allocation under most accounting methods.