Cost Accounting Flashcards
7 cards from real CA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Cost Accounting flashcards as text
The theory of constraints (TOC) focuses management attention on:
Answer: Identifying and exploiting the bottleneck that limits throughput
TOC holds that the constraint (bottleneck) limits the entire system's output; improving non-constraints yields no benefit until the bottleneck is addressed.
Backflush costing is MOST suitable for companies that:
Answer: Use JIT manufacturing with minimal WIP and rapid throughput
Backflush costing delays cost assignment until production is complete (or sold), which is appropriate when WIP levels are negligible, as in JIT environments.
Which transfer pricing method sets the price equal to the variable cost plus a lump-sum fixed-cost contribution?
Answer: Dual-rate transfer price
Dual-rate pricing charges the receiving division variable cost for marginal decisions while compensating the supplying division for fixed costs via a separate lump-sum, eliminating distortions.
When evaluating a decision to drop a product line, the MOST relevant cost to consider is:
Answer: Avoidable fixed costs directly associated with the product line
Only avoidable costs — those that will actually disappear if the product line is dropped — are relevant; allocated and sunk costs remain regardless of the decision.
A company's product mix decision under a single binding constraint should maximize:
Answer: Contribution margin per unit of constraining resource
When one resource is scarce, the optimal mix maximizes contribution margin per unit of the constrained resource (e.g., per machine hour or labor hour).
Life-cycle costing differs from traditional period costing because it:
Answer: Tracks costs and revenues over the entire lifespan of a product from design to abandonment
Life-cycle costing accumulates all costs incurred from product conception through disposal, providing a complete picture of total profitability across the product's life.
Target costing determines the allowable cost by:
Answer: Subtracting the desired profit from the market-determined selling price
Target cost = Target selling price (set by market) − Target profit; the company must then engineer the product to meet this cost constraint.