Core 2 CPA Final Exam Questions with
Guaranteed Pass Solutions 2026
Updated.
What budgets does the master budget include? and what do they comprise of? - Answer
Master budget - comprehensive financial plan
Sales budget - starting point (units of sales and dollars of sales)
Operating budget
-inventory purchase budget
-production budget (materials, DL, MOH
-selling & Admin expense budget (marketing)
-capital budget
-other (research)
What are the cons of starting the budget too early or too late? - Answer too early - lack
current info to produce accurate budgets
Too late - prep of budget may be too rushed or may not be completed before next fiscal period
What is participative budgeting? - Answer managers with responsibility over cost control
-prepare own budget figures
-figures reviewed by managers supervisors
-final budget negotiated between manager and supervisor
Bottom up approach
What is responsibility accounting? - Answer Costs assigned to appropriate managerial level
based on where control of costs exist
-works best in decentralized orgs (decision-making spread throughout the org)
What is a flexible budgeting system? - Answer Based on multiple level of activity
-isolate variances based on sales levels
,What is zero-based budgeting? - Answer Start from ground up when making budget numbers
What is activity based budgeting and activity based costing?
What are their processes? - Answer ABB- process of developing masater budget from info
from an ABC analysis - identifys and implements process improvement initiatives
-from end goals to source costs
ABB process
-forecasting products or services to be produced and customers to be served
-determine activities that are necessary to produce products and services
-quantify resources necessary to perform specific activitys
ABC
-resources costs assigned to specific activities
-overhead costs assigned to cost objects
When should a budget be adjusted? - Answer When significant events occur (drastic increase
in sales)
What are budgets used for? - Answer Evaluate performance
-used to provide incentives for good performance (bonus for exceeding budgeted profit goals)
Which of the following are true about budgets?
-Budgets should consider individual goals and objectives
-should incorporate most optimistic scenarios
-used mainly by senior management
-used as a control tool - Answer -Budgets should be used as a control tool. The standards set
by the budget can control the company's resources by monitoring differences between actual
and budgeted usage
-budget should coordinate goals/objectives of the org as a whole
, -budgets should be prepared on basis of best estimate assumptions or which mgmt expects to
occur. Sensitivity analysis could be used to determine variables for different scenarios
-budgets work best when all members of company participate and regularly monitor budget to
actual performance
How to calculate materials price variance? - Answer actual quantity x (standard price - actual
price)
If standard < actual = unfavorable
How to calculate direct labor efficiency variance? - Answer Standard rate x (standard hours -
actual hours)
If standard < actual = unfavorable
How to calculate direct materials usage variance? - Answer Standard cost x (standard
materials - actual materials)
How to calculate labor rate variance? - Answer actual hours x (standard rate - actual rate)
How to calculate flexible overhead variance? - Answer Actual OH - OH allowed for actual
production (fixed OH + variable OH)
If budget > actual = favorable
What is a opportunity cost? - Answer cash flows that a firm will lose by undertaking the
project under analysis
What is a sunk cost?
What is a differential cost? - Answer cost that cannot be avoided even if the project is not
undertaken.
Ex - if cost has no affect on accept/reject decision
Differential cost - cost that would change in the future from an action (buying more efficient
machine)
Guaranteed Pass Solutions 2026
Updated.
What budgets does the master budget include? and what do they comprise of? - Answer
Master budget - comprehensive financial plan
Sales budget - starting point (units of sales and dollars of sales)
Operating budget
-inventory purchase budget
-production budget (materials, DL, MOH
-selling & Admin expense budget (marketing)
-capital budget
-other (research)
What are the cons of starting the budget too early or too late? - Answer too early - lack
current info to produce accurate budgets
Too late - prep of budget may be too rushed or may not be completed before next fiscal period
What is participative budgeting? - Answer managers with responsibility over cost control
-prepare own budget figures
-figures reviewed by managers supervisors
-final budget negotiated between manager and supervisor
Bottom up approach
What is responsibility accounting? - Answer Costs assigned to appropriate managerial level
based on where control of costs exist
-works best in decentralized orgs (decision-making spread throughout the org)
What is a flexible budgeting system? - Answer Based on multiple level of activity
-isolate variances based on sales levels
,What is zero-based budgeting? - Answer Start from ground up when making budget numbers
What is activity based budgeting and activity based costing?
What are their processes? - Answer ABB- process of developing masater budget from info
from an ABC analysis - identifys and implements process improvement initiatives
-from end goals to source costs
ABB process
-forecasting products or services to be produced and customers to be served
-determine activities that are necessary to produce products and services
-quantify resources necessary to perform specific activitys
ABC
-resources costs assigned to specific activities
-overhead costs assigned to cost objects
When should a budget be adjusted? - Answer When significant events occur (drastic increase
in sales)
What are budgets used for? - Answer Evaluate performance
-used to provide incentives for good performance (bonus for exceeding budgeted profit goals)
Which of the following are true about budgets?
-Budgets should consider individual goals and objectives
-should incorporate most optimistic scenarios
-used mainly by senior management
-used as a control tool - Answer -Budgets should be used as a control tool. The standards set
by the budget can control the company's resources by monitoring differences between actual
and budgeted usage
-budget should coordinate goals/objectives of the org as a whole
, -budgets should be prepared on basis of best estimate assumptions or which mgmt expects to
occur. Sensitivity analysis could be used to determine variables for different scenarios
-budgets work best when all members of company participate and regularly monitor budget to
actual performance
How to calculate materials price variance? - Answer actual quantity x (standard price - actual
price)
If standard < actual = unfavorable
How to calculate direct labor efficiency variance? - Answer Standard rate x (standard hours -
actual hours)
If standard < actual = unfavorable
How to calculate direct materials usage variance? - Answer Standard cost x (standard
materials - actual materials)
How to calculate labor rate variance? - Answer actual hours x (standard rate - actual rate)
How to calculate flexible overhead variance? - Answer Actual OH - OH allowed for actual
production (fixed OH + variable OH)
If budget > actual = favorable
What is a opportunity cost? - Answer cash flows that a firm will lose by undertaking the
project under analysis
What is a sunk cost?
What is a differential cost? - Answer cost that cannot be avoided even if the project is not
undertaken.
Ex - if cost has no affect on accept/reject decision
Differential cost - cost that would change in the future from an action (buying more efficient
machine)
