ACC 406 – MANAGERIAL ACCOUNTING
(PROGRESSIVE ASSESSMENT) 150 Practice
Questions with Correct Answers &
Working/Explanations
Ryerson University / Toronto Metropolitan University
Question 1
Which of the following is a characteristic of managerial accounting rather than financial
accounting?
A) Focuses on external users (investors, creditors)
B) Must follow GAAP/IFRS
C) Emphasizes historical data and verifiability
D) Emphasizes relevance, timeliness, and future orientation
Correct Answer: D
Explanation: Managerial accounting focuses on internal users (managers), emphasizes
relevance, timeliness, and future projections, and does not require adherence to GAAP/IFRS.
Question 2
Which cost is classified as a product cost under absorption costing?
A) Administrative salaries
B) Sales commissions
C) Depreciation on factory equipment
D) Advertising expense
Correct Answer: C
Explanation: Product costs (inventoriable costs) include direct materials, direct labour, and
manufacturing overhead (including factory depreciation). Period costs (administrative, selling)
are expensed immediately.
Question 3
Direct materials cost is:
A) A period cost
,B) A product cost (manufacturing cost)
C) A selling expense
D) An administrative expense
Correct Answer: B
Explanation: Direct materials are raw materials that become an integral part of the finished
product and are a component of product cost under both absorption and variable costing.
Question 4
Which of the following is an example of a fixed cost?
A) Direct materials used in production
B) Sales commissions paid per unit sold
C) Factory rent
D) Electricity for factory machines (varies with production)
Correct Answer: C
Explanation: Fixed costs remain constant in total within the relevant range regardless of activity
level. Factory rent is fixed; direct materials and sales commissions are variable; factory
electricity is typically variable or mixed.
Question 5
Which of the following is an example of a variable cost?
A) Monthly factory rent
B) Annual depreciation on equipment (straight-line)
C) Direct materials used in production
D) Salary of the factory supervisor
Correct Answer: C
Explanation: Variable costs change in total proportionally with changes in activity level. Direct
materials cost per unit is constant but total varies with production. Rent, straight-line
depreciation, and supervisor salary are fixed.
Question 6
A company's total manufacturing overhead is $200,000, direct labour cost is $100,000, and
direct materials cost is $150,000. Predetermined overhead rate as a percentage of direct labour
cost is:
A) 50%
B) 100%
,C) 150%
D) 200%
Correct Answer: D
Explanation: Predetermined overhead rate Estimated overhead / Estimated direct labour cost
$200,000 / $100,000 200% of direct labour cost.
Question 7
Using the high-low method, if the highest activity level is 10,000 units with cost of $80,000 and
the lowest activity level is 5,000 units with cost of $50,000, the variable cost per unit is:
A) $3
B) $5
C) $6
D) $8
Correct Answer: C
Explanation: Variable cost per unit (Highest cost - Lowest cost) / (Highest activity - Lowest
activity) ($80,000 - $50,000) / (10,000 - 5,000) $30,,000 $6 per unit.
Question 8
Using the same data (high: 10,000 units, $80,000; low: 5,000 units, $50,000), the fixed cost is:
A) $10,000
B) $20,000
C) $30,000
D) $40,000
Correct Answer: B
Explanation: Fixed cost Total cost - (Variable cost per unit × Activity). Using high point: Fixed
cost $80,000 - ($6 × 10,000) $80,000 - $60,000 $20,000. Using low point: $50,000 - ($6 ×
5,000) $50,000 - $30,000 $20,000.
Question 9
What is the contribution margin?
A) Sales revenue minus fixed costs
B) Sales revenue minus variable costs
C) Sales revenue minus total costs
D) Net income plus fixed costs
, Correct Answer: B
Explanation: Contribution margin Sales revenue - Variable costs. It represents the amount
available to cover fixed costs and then provide profit.
Question 10
A company sells a product for $50 per unit. Variable cost per unit is $30, and total fixed costs
are $40,000. The contribution margin per unit is:
A) $10
B) $20
C) $30
D) $40
Correct Answer: B
Explanation: Contribution margin per unit Selling price per unit - Variable cost per unit $50 -
$30 $20.
Question 11
Using the same data ($50 selling price, $30 variable cost, $40,000 fixed cost), the break-even
point in units is:
A) 800 units
B) 1,000 units
C) 2,000 units
D) 4,000 units
Correct Answer: C
Explanation: Break-even (units) Fixed costs / Contribution margin per unit $40,000 / $20 2,000
units.
Question 12
A company has sales of $500,000, variable costs of $300,000, and fixed costs of $150,000. The
contribution margin ratio is:
A) 30%
B) 40%
C) 50%
D) 60%
Correct Answer: B
(PROGRESSIVE ASSESSMENT) 150 Practice
Questions with Correct Answers &
Working/Explanations
Ryerson University / Toronto Metropolitan University
Question 1
Which of the following is a characteristic of managerial accounting rather than financial
accounting?
A) Focuses on external users (investors, creditors)
B) Must follow GAAP/IFRS
C) Emphasizes historical data and verifiability
D) Emphasizes relevance, timeliness, and future orientation
Correct Answer: D
Explanation: Managerial accounting focuses on internal users (managers), emphasizes
relevance, timeliness, and future projections, and does not require adherence to GAAP/IFRS.
Question 2
Which cost is classified as a product cost under absorption costing?
A) Administrative salaries
B) Sales commissions
C) Depreciation on factory equipment
D) Advertising expense
Correct Answer: C
Explanation: Product costs (inventoriable costs) include direct materials, direct labour, and
manufacturing overhead (including factory depreciation). Period costs (administrative, selling)
are expensed immediately.
Question 3
Direct materials cost is:
A) A period cost
,B) A product cost (manufacturing cost)
C) A selling expense
D) An administrative expense
Correct Answer: B
Explanation: Direct materials are raw materials that become an integral part of the finished
product and are a component of product cost under both absorption and variable costing.
Question 4
Which of the following is an example of a fixed cost?
A) Direct materials used in production
B) Sales commissions paid per unit sold
C) Factory rent
D) Electricity for factory machines (varies with production)
Correct Answer: C
Explanation: Fixed costs remain constant in total within the relevant range regardless of activity
level. Factory rent is fixed; direct materials and sales commissions are variable; factory
electricity is typically variable or mixed.
Question 5
Which of the following is an example of a variable cost?
A) Monthly factory rent
B) Annual depreciation on equipment (straight-line)
C) Direct materials used in production
D) Salary of the factory supervisor
Correct Answer: C
Explanation: Variable costs change in total proportionally with changes in activity level. Direct
materials cost per unit is constant but total varies with production. Rent, straight-line
depreciation, and supervisor salary are fixed.
Question 6
A company's total manufacturing overhead is $200,000, direct labour cost is $100,000, and
direct materials cost is $150,000. Predetermined overhead rate as a percentage of direct labour
cost is:
A) 50%
B) 100%
,C) 150%
D) 200%
Correct Answer: D
Explanation: Predetermined overhead rate Estimated overhead / Estimated direct labour cost
$200,000 / $100,000 200% of direct labour cost.
Question 7
Using the high-low method, if the highest activity level is 10,000 units with cost of $80,000 and
the lowest activity level is 5,000 units with cost of $50,000, the variable cost per unit is:
A) $3
B) $5
C) $6
D) $8
Correct Answer: C
Explanation: Variable cost per unit (Highest cost - Lowest cost) / (Highest activity - Lowest
activity) ($80,000 - $50,000) / (10,000 - 5,000) $30,,000 $6 per unit.
Question 8
Using the same data (high: 10,000 units, $80,000; low: 5,000 units, $50,000), the fixed cost is:
A) $10,000
B) $20,000
C) $30,000
D) $40,000
Correct Answer: B
Explanation: Fixed cost Total cost - (Variable cost per unit × Activity). Using high point: Fixed
cost $80,000 - ($6 × 10,000) $80,000 - $60,000 $20,000. Using low point: $50,000 - ($6 ×
5,000) $50,000 - $30,000 $20,000.
Question 9
What is the contribution margin?
A) Sales revenue minus fixed costs
B) Sales revenue minus variable costs
C) Sales revenue minus total costs
D) Net income plus fixed costs
, Correct Answer: B
Explanation: Contribution margin Sales revenue - Variable costs. It represents the amount
available to cover fixed costs and then provide profit.
Question 10
A company sells a product for $50 per unit. Variable cost per unit is $30, and total fixed costs
are $40,000. The contribution margin per unit is:
A) $10
B) $20
C) $30
D) $40
Correct Answer: B
Explanation: Contribution margin per unit Selling price per unit - Variable cost per unit $50 -
$30 $20.
Question 11
Using the same data ($50 selling price, $30 variable cost, $40,000 fixed cost), the break-even
point in units is:
A) 800 units
B) 1,000 units
C) 2,000 units
D) 4,000 units
Correct Answer: C
Explanation: Break-even (units) Fixed costs / Contribution margin per unit $40,000 / $20 2,000
units.
Question 12
A company has sales of $500,000, variable costs of $300,000, and fixed costs of $150,000. The
contribution margin ratio is:
A) 30%
B) 40%
C) 50%
D) 60%
Correct Answer: B
