CPA Cost Accounting & Budgeting Flashcards

Which budgeting approach requires managers to justify every expenditure from a zero base each period, rather than using prior-year spending as a baseline?

Answer: Zero-based budgeting (ZBB)

Zero-based budgeting requires every expense to be justified and approved for each new period without reference to prior budgets.

The break-even point in units is calculated as:

Answer: Fixed costs divided by contribution margin per unit

Break-even units equal total fixed costs divided by the contribution margin per unit (selling price minus variable cost per unit).

A favorable materials price variance combined with an unfavorable materials quantity variance most likely indicates:

Answer: Purchase of lower-quality materials that caused more waste

Purchasing lower-quality materials at a cheaper price (favorable price) often results in more waste or defects, causing an unfavorable quantity variance.

In process costing, 'equivalent units of production' are used to:

Answer: Convert actual units started into a common measure accounting for completion percentage

Equivalent units convert partially completed units into a whole-unit measure so that costs can be assigned accurately to units at various stages of completion.

Which of the following is an example of a capital budgeting decision?

Answer: Deciding whether to purchase new manufacturing equipment

Capital budgeting involves evaluating long-term investment decisions such as purchasing equipment, facilities, or other long-lived assets.

The master budget is BEST described as:

Answer: A comprehensive set of budgets culminating in pro forma financial statements

The master budget is a comprehensive planning document that integrates all functional budgets and culminates in pro forma income statements, balance sheets, and cash flow statements.