ACC 406 MANAGEMENT ACCOUNTING
TEST 2 COMPREHENSIVE EXAM |
QUESTIONS AND ANSWERS |2026/2027
UPDATE | JUST RELEASED
1. Which of the following is most likely to be considered a relevant cost in a make-or-buy
decision?
A. Unavoidable fixed overhead
B. Depreciation on existing machinery with no resale value
C. The cost of the original design of the product
D. Avoidable fixed costs
Answer: D
Conceptual Explanation: In incremental analysis, only future costs that differ between
alternatives are relevant. Avoidable fixed costs change depending on the decision, while
unavoidable costs and sunk costs (like depreciation or past design costs) do not.
,2. Company X has a contribution margin ratio of 40%. If sales increase by $100,000 and fixed
costs remain unchanged, how much will net income increase?
A. $60,000
B. $40,000
C. $100,000
D. $0
Answer: B
Conceptual Explanation: Net income increases by the Change in Sales multiplied by the
Contribution Margin Ratio. $100,000 * 0.40 = $40,000.
3. A company expects to sell 5,000 units in January and 6,000 units in February. The desired
ending inventory is 20% of the next month’s sales. How many units should be produced in
January?
A. 5,000 units
B. 4,800 units
C. 6,200 units
D. 5,200 units
Answer: D
, Conceptual Explanation: Production = Expected Sales + Desired Ending Inventory -
Beginning Inventory. Jan Sales (5,000) + End Inv (20% of 6,000 = 1,200) - Beg Inv (20% of
5,000 = 1,000) = 5,200.
4. The Direct Labor Price Variance is calculated as:
A. (Actual Hours - Standard Hours) * Standard Rate
B. (Actual Rate - Standard Rate) * Standard Hours
C. (Actual Hours - Standard Hours) * Actual Rate
D. (Actual Rate - Standard Rate) * Actual Hours
Answer: D
Conceptual Explanation: The price (or rate) variance measures the difference between
what was paid and what should have been paid for the actual amount of input used.
5. If the Margin of Safety is $50,000 and the Sales are $200,000, what is the Margin of Safety
Ratio?
A. 25%
B. 400%
C. 75%
D. 50%
Answer: A
TEST 2 COMPREHENSIVE EXAM |
QUESTIONS AND ANSWERS |2026/2027
UPDATE | JUST RELEASED
1. Which of the following is most likely to be considered a relevant cost in a make-or-buy
decision?
A. Unavoidable fixed overhead
B. Depreciation on existing machinery with no resale value
C. The cost of the original design of the product
D. Avoidable fixed costs
Answer: D
Conceptual Explanation: In incremental analysis, only future costs that differ between
alternatives are relevant. Avoidable fixed costs change depending on the decision, while
unavoidable costs and sunk costs (like depreciation or past design costs) do not.
,2. Company X has a contribution margin ratio of 40%. If sales increase by $100,000 and fixed
costs remain unchanged, how much will net income increase?
A. $60,000
B. $40,000
C. $100,000
D. $0
Answer: B
Conceptual Explanation: Net income increases by the Change in Sales multiplied by the
Contribution Margin Ratio. $100,000 * 0.40 = $40,000.
3. A company expects to sell 5,000 units in January and 6,000 units in February. The desired
ending inventory is 20% of the next month’s sales. How many units should be produced in
January?
A. 5,000 units
B. 4,800 units
C. 6,200 units
D. 5,200 units
Answer: D
, Conceptual Explanation: Production = Expected Sales + Desired Ending Inventory -
Beginning Inventory. Jan Sales (5,000) + End Inv (20% of 6,000 = 1,200) - Beg Inv (20% of
5,000 = 1,000) = 5,200.
4. The Direct Labor Price Variance is calculated as:
A. (Actual Hours - Standard Hours) * Standard Rate
B. (Actual Rate - Standard Rate) * Standard Hours
C. (Actual Hours - Standard Hours) * Actual Rate
D. (Actual Rate - Standard Rate) * Actual Hours
Answer: D
Conceptual Explanation: The price (or rate) variance measures the difference between
what was paid and what should have been paid for the actual amount of input used.
5. If the Margin of Safety is $50,000 and the Sales are $200,000, what is the Margin of Safety
Ratio?
A. 25%
B. 400%
C. 75%
D. 50%
Answer: A
