Cost Accounting & Management Flashcards

A flexible budget differs from a static budget in that it:

Answer: Adjusts revenues and costs for the actual level of activity

A flexible budget recalculates expected revenues and variable costs based on the actual activity level achieved, enabling meaningful variance analysis.

The 'reciprocal method' of service department cost allocation is considered most accurate because it:

Answer: Fully recognizes mutual services provided between service departments

The reciprocal method uses simultaneous equations to capture the full extent of services exchanged between service departments.

When evaluating a capital-intensive production line, which cost behavior pattern would fixed manufacturing overhead costs exhibit on a per-unit basis as volume increases?

Answer: Decrease per unit

Fixed costs remain constant in total, so per-unit fixed cost decreases as more units spread the cost over a larger base.

Which inventory valuation approach is MOST likely to result in the lowest cost of goods sold during a period of rising prices?

Answer: FIFO

Under FIFO during rising prices, older (cheaper) costs flow into COGS first, resulting in lower COGS and higher gross profit.

In transfer pricing, the minimum transfer price a selling division should accept is:

Answer: Variable cost plus opportunity cost

The minimum acceptable transfer price equals variable cost plus any opportunity cost (contribution margin foregone from external sales).

A company is operating at full capacity. An additional order is received at a price below the regular selling price. The financial analysis should focus on:

Answer: The contribution margin per unit compared to contribution from displaced regular sales

At full capacity, accepting a special order means displacing regular sales, so the key comparison is the special order's contribution vs. the opportunity cost of lost regular business.

Backflush costing is most suitable for companies that:

Answer: Operate under JIT with minimal inventory levels

Backflush costing delays cost recognition until completion or sale, which is efficient for JIT environments with negligible WIP inventory.