CPA Cost Accounting & Budgeting Flashcards

When using net present value (NPV) for capital budgeting, a project should be accepted if:

Answer: NPV is greater than zero

A positive NPV indicates the project generates returns in excess of the required rate of return, creating value for the company.

Which cost behavior pattern remains constant in total but decreases on a per-unit basis as production volume increases?

Answer: Fixed cost

Fixed costs remain constant in total regardless of production volume, so the per-unit fixed cost decreases as more units are produced.

The payback period method of capital budgeting is criticized primarily because it:

Answer: Ignores the time value of money and cash flows after the payback period

The payback period ignores both the time value of money and any cash flows occurring after the payback period, potentially rejecting long-lived profitable projects.

In responsibility accounting, a cost center manager is held responsible for:

Answer: Costs only

A cost center manager controls and is accountable only for costs, not revenues or investment decisions, which are controlled at higher organizational levels.

Which of the following is the BEST measure of performance for an investment center manager?

Answer: Return on investment (ROI) or residual income

Investment center managers control revenues, costs, AND invested capital, so ROI or residual income — which incorporate all three elements — are the most appropriate performance measures.

Under the weighted average process costing method, costs in beginning work-in-process inventory are:

Answer: Combined with current-period costs and averaged over all equivalent units

The weighted average method blends beginning WIP costs with current-period costs and divides by total equivalent units (completed plus ending WIP) to compute a single average unit cost.