Question 1

Marginal costing is a …………….
A)Method of costing
B)Technique of costing
C)Process of costing
D)None of the above

Accepted Answer

Marginal costing is a technique of costing used to provide a basis for the interpretation of cost data to measure the profitability of different cost centers by differentiating between fixed costs and variable costs.

Question 2

Contribution is known as ………..
A)Marginal income
B)Marginal cost
C)Gross profit
D)Net income

Accepted Answer

Contribution is known as marginal income, which is the income generated from each additional unit sold, essentially the difference between sales revenue and variable costs.

Question 3

Margin of safety may be improved by
A)Increasing sales volume
B)Lowering variable cost
C)Lowering fixed cost
D)All of the above

Accepted Answer

The margin of safety can be improved by increasing sales volume, lowering variable costs, or lowering fixed costs. Each of these actions helps to increase the difference between actual sales and the break-even point, thereby improving the margin of safety.

Question 4

PV ratio may be improved by
A)Increasing the sales price
B)Lowering variable cost
C)Lowering fixed cost
D)None of the above

Accepted Answer

The answer of PV ratio may be improved by
A)Increasing the...

Question 5

For decision making purpose, which is more suitable to the management
A)Standard costing
B)Marginal costing
C)Absorption costing
D)Traditional costing

Accepted Answer

Marginal costing is more suitable for decision-making purposes because it helps in determining the impact of different levels of costs and volume on operating profit. It focuses on the costs that change with the level of output (variable costs) and is useful for short-term decision-making processes like pricing, make or buy decisions, and product mix decisions.

Question 6

Increasing in selling price
A)Increase PV ratio
B)Decrease break even point
C)Increase margin of safety
D)None of the above

Accepted Answer

The answer of Increasing in selling price
A)Increase PV ratio
B)Decrease break...

Question 7

Increase in variable cost
A)Increases in PV ratio
B)Decreases breakeven point
C)Increases margin of safety
D)None the above

Accepted Answer

An increase in variable cost does not increase the PV (Profit Volume) ratio, decrease the breakeven point, or increase the margin of safety. Instead, it typically has the opposite effects: it can decrease the PV ratio, increase the breakeven point, and decrease the margin of safety, making D the correct choice.

Question 8

Marginal costing technique helps the management in deciding
A)Price of the product
B)Make or buy decision
C)To accepts fresh orders at low price
D)All of the above

Accepted Answer

Marginal costing provides insights into the variable costs associated with production, aiding in pricing, make-or-buy decisions, and evaluating the profitability of accepting new orders at lower prices.

Question 9

Which of the following is true at breakeven point
A)Contribution = fixed cost
B)Sales = total cost
C)Sales curve cuts total cost line
D)All of the above

Accepted Answer

At the breakeven point, all three statements are true: the contribution equals fixed costs, sales equal total costs, and the sales curve intersects the total cost line, indicating no profit or loss.

Question 10

Activity-based costing:
A)Uses a plant-wide overhead rate to assign overhead
B)Is not expensive to implement
C)Typically applies overhead costs using direct labor-hours
D)Uses multiple activity rates

Accepted Answer

Activity-based costing (ABC) uses multiple activity rates to more accurately assign overhead costs to products or services based on the specific activities that each requires. This contrasts with traditional costing methods that might use a single plant-wide overhead rate or direct labor-hours as the basis for overhead allocation. ABC recognizes that different products consume different resources and activities, and thus, it aims to assign costs more precisely based on those consumptions.

Question 11

Assigning overhead using ABC often:
A)Shifts overhead costs from high-volume products to low-volume products
B)Shifts overhead costs from low-volume products to high-volume products
C)Provides the same results as traditional costing
D)Requires one predetermined overhead rate

Accepted Answer

Assigning overhead using Activity-Based Costing (ABC) often shifts overhead costs from high-volume products to low-volume products because it allocates costs based on the actual activities that drive those costs, rather than distributing them uniformly across all products. This method recognizes that low-volume products often require more specialized activities, which can be more costly.

Question 12

Painting the product would be an example of which activity level groups
A)Facility-level activity
B)Product-level activity
C)Unit-level activity
D)Batch-level activity

Accepted Answer

Painting the product is a unit-level activity because it is performed each time a unit is produced.

Question 13

Plant depreciation is an example of which activity-level group?
A)Unit-level activity
B)Facility-level activity
C)Batch-level activity
D)Product-level activity

Accepted Answer

Plant depreciation is considered a facility-level activity because it is associated with costs that do not change with the volume of production within the facility. These costs are incurred regardless of the number of units produced, batches run, or different products made.

Question 14

Assume that a company produces two products in a manufacturing plant. One is a low volume specialty product that is produced on a demand pull basis, while the other is a high volume product that is produced on a push basis for inventory. A production volume based cost allocation system would tend to
A)Accurately reflect the product cost of the two products.
B)Overstate the product cost of the low volume product.
C)Understate the product cost of the low volume product.
D)Overstate the product cost of both products.

Accepted Answer

The answer of Assume that a company produces two products...

Question 15

In the situation stated in the question above, the company's net income based on a production volume based system will tend to be ________ relative to net income based on an activity based costing system.
A)Overstated.
B)Understated.
C)Overstated for the low volume product and understated for the high volume product.
D)b and d.

Accepted Answer

The answer of In the situation stated in the question...

Question 16

Cooper and Kaplan recommend using which of the following as the basis, or denominator, when developing activity cost pool rates for activity based costing.
A)The maximum capacity for each activity.
B)The practical capacity for each activity.
C)The planned or budgeted for each activity.
D)The normal capacity for each activity.

Accepted Answer

Cooper and Kaplan, who are pioneers in the field of Activity-Based Costing (ABC), recommend using the practical capacity of each activity as the basis for developing activity cost pool rates. Practical capacity refers to the maximum amount of work that can be done, taking into account unavoidable interruptions, and it provides a more realistic basis for allocating costs compared to theoretical maximum or normal capacities.

Question 17

Which of the following is not an argument for using a separate stand alone system for activity based costing, i.e., rather than integrating ABC with the general ledger system used for GAAP?
A)GAAP product costs may be incorrect relative to ABC product costs
B)It is faster to develop.
C)It is less costly to develop.
D)Subjective information can be used that auditors might question.

Accepted Answer

GAAP product costs and ABC product costs serve different purposes. GAAP costs are designed for external reporting and may not accurately reflect the actual costs of activities and resources used by products, which is what ABC aims to do. Thus, the argument that GAAP product costs may be incorrect relative to ABC product costs does not support the use of a separate stand-alone system for ABC; rather, it highlights a fundamental difference in the purpose and methodology of the two costing systems.

Question 18

Which of the following arguments support integrating ABC with the general ledger system used for GAAP, rather than using a separate stand alone ABC system?
A)Managers tend to prefer a single accounting system for product costing.
B)Two separate systems tend to be confusing for management.
C)Two separate systems tend to create redundant information and staff.
D)all of the above.

Accepted Answer

All of the options provided (A, B, and C) support the argument for integrating Activity-Based Costing (ABC) with the general ledger system used for Generally Accepted Accounting Principles (GAAP) rather than maintaining a separate, standalone ABC system. Integrating the systems can streamline processes, reduce confusion, and eliminate redundancy in information and staffing.

Question 19

Which of the following types of characteristics tend to cause too little overhead costs to be charged to the product using traditional cost allocations?
A)a relatively small product.
B)a relatively low volume product.
C)a relatively simple product.
D)a and b.

Accepted Answer

Traditional cost allocation methods often allocate overhead based on volume-related measures, such as labor hours or machine hours. Therefore, products that are small or have low volume may not absorb their fair share of overhead costs, leading to too little overhead being charged to these products. Simple products, however, are not specifically related to the allocation issue described, as complexity does not directly impact volume-based allocation methods.

Question 20

Which audience was activity based costing originally designed to serve?
A)Users of external financial statements.
B)Front line managers who plan & control activities or processes on a daily basis.
C)Managers who make short term strategic decisions such as outsourcing.
D)Managers who make long term strategic decisions concerning investments.

Accepted Answer

The answer of Which audience was activity based costing originally...

Quiz 1: Marginal Costing, Contribution, and Activity-Based Costing Techniques

Marginal costing is a …………….

Contribution is known as ………..

Margin of safety may be improved by

PV ratio may be improved by

For decision making purpose, which is more suitable to the management

Increasing in selling price

Increase in variable cost

Marginal costing technique helps the management in deciding

Which of the following is true at breakeven point

Activity-based costing:

Assigning overhead using ABC often:

Painting the product would be an example of which activity level groups

Plant depreciation is an example of which activity-level group?

In the situation stated in the question above, the company's net income based on a production volume based system will tend to be ________ relative to net income based on an activity based costing system.

Cooper and Kaplan recommend using which of the following as the basis, or denominator, when developing activity cost pool rates for activity based costing.

Which of the following is not an argument for using a separate stand alone system for activity based costing, i.e., rather than integrating ABC with the general ledger system used for GAAP?

Which of the following arguments support integrating ABC with the general ledger system used for GAAP, rather than using a separate stand alone ABC system?

Which of the following types of characteristics tend to cause too little overhead costs to be charged to the product using traditional cost allocations?

Which audience was activity based costing originally designed to serve?