Costing Methods & Profitability Flashcards
7 cards from real CPP practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Costing Methods & Profitability flashcards as text
A manufacturer uses Activity-Based Costing (ABC) and identifies that its 'order processing' activity costs $500,000 annually with 10,000 orders processed. What is the cost driver rate?
Answer: $50 per order
$500,000 divided by 10,000 orders equals $50 per order as the cost driver rate.
Which costing method is most susceptible to producing misleading profitability information when product mix changes significantly?
Answer: Traditional volume-based absorption costing
Traditional volume-based absorption costing distorts product costs when product mix shifts because it allocates overhead based on a single volume driver like labor hours.
A company's fixed costs are $200,000, variable cost per unit is $30, and selling price is $50. At what sales volume does the company break even?
Answer: 10,000 units
Break-even = Fixed Costs / Contribution Margin per unit = $200,000 / ($50 - $30) = 10,000 units.
Under throughput accounting, which cost is treated as a period expense rather than a product cost?
Answer: All operating expenses except direct materials
Throughput accounting treats all operating expenses except direct materials as period costs, focusing only on materials as the true variable cost.
When a company switches from FIFO to LIFO inventory costing during a period of rising prices, what is the expected effect on reported profitability?
Answer: Profitability decreases because COGS increases
Under LIFO in rising price environments, the most recently purchased (higher-cost) inventory is expensed first, increasing COGS and decreasing reported profit.
A pricing analyst uses 'customer profitability analysis.' Which cost would typically be EXCLUDED from calculating an individual customer's profitability?
Answer: Corporate headquarters administrative overhead
Corporate headquarters overhead is not traceable to individual customers and is typically excluded from customer-level profitability analysis.
Which profitability metric measures how efficiently a company uses its assets to generate earnings?
Answer: Return on Assets (ROA)
Return on Assets (ROA) = Net Income / Total Assets, measuring how efficiently assets generate profit.