Question 1

Which one of the following is the best reason for using variable costing?

Options :

A : Variable costing is acceptable for income tax reporting purposes.

B : All costs are variable in the long term.

C : Fixed factory overhead is more closely related to the capacity to produce than to the production of specific units.

D : Variable costing usually results in higher operating income than if a company uses absorption costing.

Answer: C

Question 2

Life-cycle costing

Options :

A : Is sometimes used as a basis for cost planning and product pricing.

B : Includes only manufacturing costs incurred over the life of the product.

C : Includes only manufacturing cost, selling expense, and distribution expense.

D : Emphasizes cost savings opportunities during the manufacturing cycle.

Answer: A

Question 3

Which one of the following is not an advantage of a participatory budgeting process?

Options :

A : Control of uncertainties.

B : Goal congruence.

C : Communication between departments.

D : Coordination between departments.

Answer: A

Question 4

A company has net sales of $4,000,000, operating income of $1,200,000, and net income of $1,000,000. Average total assets are $9,000,000 and average total equity is $7,000,000. What is the company’s return on equity (ROE) and return on assets (ROA)?

Options :

A : ROE is greater than 12%, and ROA is less than 12%.

B : ROE is less than 12%, and ROA is greater than 12%.

C : ROE and ROA are both greater than 12%.

D : ROE and ROA are both less than 12%.

Answer: A

Question 5

A specialty instrument manufacturer is in the process of establishing a cost system. The company produces machines that are unique and distinctive. These machines are produced when purchase requests are received from customers. Although some common parts and sub-assemblies are to be held in inventory, no finished goods inventory is maintained since each purchase request is for a customized specialty instrument. The type of cost accumulation system that would be best suited for this type of environment would be

Options :

A : Batch-level costing.

B : Process costing.

C : Job-order costing.

D : Backflush costing.

Answer: C