CIMA Management Accounting 2 — Questions and Answers
Question 1: A company uses activity-based costing (ABC). Which cost driver would most appropriately be used for the 'machine setup' activity pool?
- Number of machine hours
- Number of production runs (Correct answer)
- Number of units produced
- Direct labor hours
Correct answer: Number of production runs
Number of production runs is the most appropriate driver for machine setup costs because each run requires a setup regardless of batch size.
Question 2: When using marginal costing, which of the following costs is included in the product cost?
- Fixed manufacturing overhead
- Variable selling expenses
- Variable manufacturing overhead (Correct answer)
- Fixed administrative overhead
Correct answer: Variable manufacturing overhead
Marginal costing includes only variable manufacturing costs (direct materials, direct labor, variable overhead) in product cost; fixed costs are period costs.
Question 3: A firm's contribution margin ratio is 40% and fixed costs are $200,000. What is the breakeven sales revenue?
- $80,000
- $280,000
- $500,000 (Correct answer)
- $340,000
Correct answer: $500,000
Breakeven sales = Fixed costs ÷ Contribution margin ratio = $200,000 ÷ 0.40 = $500,000.
Question 4: In a standard costing system, a favorable material usage variance means:
- Actual material used exceeded standard quantity allowed
- Standard quantity allowed exceeded actual material used (Correct answer)
- Actual price paid was less than standard price
- Actual output was less than budgeted output
Correct answer: Standard quantity allowed exceeded actual material used
A favorable material usage variance occurs when actual quantity used is less than the standard quantity allowed for actual output.
Question 5: Which of the following is a characteristic of a cost center?
- It is accountable for both costs and revenues
- It controls investment decisions
- It is accountable only for costs incurred (Correct answer)
- It is evaluated on return on investment
Correct answer: It is accountable only for costs incurred
A cost center manager is responsible only for controlling costs; revenue and investment decisions are outside their scope.
Question 6: Transfer pricing between divisions is primarily used to:
- Minimize the company's total tax liability
- Measure divisional performance and motivate managers (Correct answer)
- Eliminate inter-company transactions from financial statements
- Set external market prices for products
Correct answer: Measure divisional performance and motivate managers
Transfer prices enable measurement of divisional profit performance and incentivize managers to act in the company's best interest.
Question 7: A company produces two products using a single bottleneck resource. According to throughput accounting, which product should be prioritized?
- The product with the highest selling price
- The product with the highest throughput per unit of bottleneck resource (Correct answer)
- The product with the lowest total cost
- The product with the highest contribution margin per unit
Correct answer: The product with the highest throughput per unit of bottleneck resource
Throughput accounting ranks products by throughput (sales minus direct materials) per unit of the bottleneck resource to maximize overall throughput.
CIMA Management Accounting 2
A company uses activity-based costing (ABC).
Which cost driver would most appropriately be used for the 'machine setup' activity pool?