CERTIFIED MANAGEMENT ACCOUNTANT (CMA) -
PART 1
SECTION D – Cost Management (Weightage 20%)
S.No Questions Answers
1. What are effective and An effective operation is one that achieves or exceeds the goals set for
efficient operations? the operation.
An efficient operation is one that makes effective use of its resources
in carrying out the operation.
2. What are costs and Costs are resources given up to achieve an objective.
expenses? Expenses are costs that have been charged against revenue in a
specific accounting period.
3. What are direct costs and Direct costs are costs that can be traced directly to a specific cost
cost objects? object.
A cost object is anything for which a separate cost measurement is
recorded.
4. What are fixed costs Fixed costs do not change when the level of production changes, within
and how do they behave the relevant range of production.
as production levels The total amount of these costs does not change with a change in
change? production volume. However, the cost per unit decreases as
production increases and increases as production decreases.
5. What are variable costs Variable costs are costs such as material and labor that are incurred
and how do they behave only when a product is made.
as production levels The per unit variable cost remains unchanged as production increases
change? or decreases while total variable cost increases as production
increases and decreases as production decreases.
6. What are mixed costs? Mixed costs have both a fixed and a variable component.
7. What are product costs? Product costs go directly into the production process, without which
the product could not be made.
Product costs are “attached” to each unit and will be carried on the
balance sheet as inventory when production is completed.
8. What are the three types 1) Direct materials
of costs that are product 2) Direct labor
costs? 3) Manufacturing overhead (both fixed and variable)
9. What costs are included in 1) Overhead costs like electricity, rent, depreciation
overhead costs? 2) Indirect labor
3) Indirect materials
10. What are prime costs? Prime costs are the costs of direct material and direct labor. These are
the direct inputs, or the direct costs of manufacturing.
11. What are manufacturing Manufacturing costs include prime costs and manufacturing overhead
costs? applied.
These are all of the costs that need to be incurred in order to produce
the product.
12. What are conversion Conversion costs include manufacturing overhead (both fixed and
costs? variable) and direct labor.
These are the costs that are required to convert the direct materials
into the final product.
From the Desk of Muhammad Zain – Founder of Zain Academy Page 78 of 154
, CERTIFIED MANAGEMENT ACCOUNTANT (CMA) -
PART 1
13. What are period costs? Period costs are costs for activities other than the production of the
product.
14. What are opportunity Opportunity costs are the contributions to income that are lost by not
costs? using a limited resource in its best alternative use.
15. What are sunk costs? Sunk costs are costs that have already been incurred and cannot be
recovered.
Sunk costs are irrelevant in any decision-making process because they
have already been incurred and no present or future decision can
change them.
16. What are committed Committed costs are costs for the company’s infrastructure.
costs? They are costs required to establish and maintain the readiness to do
business.
17. How is cost of goods sold Beginning finished goods inventory
calculated? + Purchases (for a reseller) or cost of goods manufactured (for
a manufacturer)
− Ending finished goods inventory
= Cost of Goods Sold
18. How is cost of goods Direct Materials Used
manufactured calculated? + Direct Labor Used
+ Manufacturing Overhead Applied
= Total Manufacturing Costs
+ Beginning Work-in-Process Inventory
− Ending Work-in-Process Inventory
= Cost of Goods Manufactured
19. What are the four main 1) Standard
cost measurement 2) Normal
systems? 3) Extended normal
4) Actual costing systems
20. What are the application Standard Rate
rate and base for direct and
materials and direct labor Standard Amount Allowed for Actual Production
under standard costing?
21. What are the application Actual Rate
rate and base for direct and
materials and direct labor Actual Amount Used for Actual Production
under normal costing?
22. What are the application Estimated Normalized Rate
rate and base for direct and
materials and Actual Amount Used for Actual Production
direct labor under
extended
normal costing?
23. What are the application Actual Rate
rate and base for direct and
materials and direct labor Actual Amount Used for Actual Production
under actual costing?
From the Desk of Muhammad Zain – Founder of Zain Academy Page 79 of 154
, CERTIFIED MANAGEMENT ACCOUNTANT (CMA) -
PART 1
24. What are the application Predetermined Standard Rate
rate and base for and
overhead under Standard Amount of application base Allowed for Actual Production
standard costing?
25. What are the application Estimated Normalized Rate
rate and base for and
overhead under Actual Amount of application base Used for Actual Production
normal & extended
normal costing?
26. What are the application Actual Rate
rate and base for and
overhead under Actual Amount of application base Used for Actual Production
actual costing?
27. How is the predetermined Budgeted Dollar Amount of Manufacturing Overhead
overhead allocation rate Budgeted Activity Level
calculated?
28. What are the four choices 1) Theoretical (or ideal) capacity
for level of activity? 2) Practical (or currently attainable) capacity
3) Master budget capacity utilization (expected actual capacity
utilization)
4) Normal capacity utilization
29. How is over-applied or Actual Costs Incurred
under-applied overhead − Factory Overhead Applied During the Period
calculated? = Under (Over) Applied Factory Overhead
30. How is an immaterial Under-applied overhead is added to COGS and over-applied overhead
amount of over- or under- is subtracted from COGS.
applied overhead closed
out?
31. How is a material amount It is distributed among the WIP Inventory, Finished Goods Inventory,
of and Cost of Goods Sold accounts.
over- or under-applied The variances are pro-rated according to the amount of overhead
overhead closed out? included in each that was allocated to the current period’s production.
32. What is the formula for Units in Beginning WIP
the physical flow of goods + Units Transferred In
in process costing? Is equal to
Units in Ending WIP
+ Units Completed/Transferred Out
33. How is the number of # Units Completed
units started and – # Units in Beginning WIP
completed calculated in = Units Started and Completed This Period
process costing?
34. How is equivalent units Completion of BWIP
produced calculated in + Started & Completed
process costing under the + Starting of EWIP
FIFO method? = EUP this period
From the Desk of Muhammad Zain – Founder of Zain Academy Page 80 of 154
, CERTIFIED MANAGEMENT ACCOUNTANT (CMA) -
PART 1
35. How is equivalent units Units Completed
produced calculated in + Starting of EWIP
process costing under the = EUP this period
weighted average
method?
36. What costs are included as Only the costs incurred during the period are considered to be costs of
costs incurred in the the period.
period under the FIFO The costs that are in BWIP for the period are transferred to finished
method of process goods.
costing?
37. What are normal and Normal spoilage is the amount that is expected from the production
abnormal spoilage? process.
Abnormal spoilage is any spoilage in excess of normal spoilage.
38. What is done with the The costs that have been allocated to the normally spoiled units are
costs allocated to normal added to the costs of the good units that are transferred out to
spoilage? finished goods (or the next department).
39. What is done with the Costs related to abnormal spoilage are expensed on the income
costs allocated to statement in the period incurred as a loss from abnormal spoilage.
abnormal spoilage?
40. What costs are included as 1) The costs actually incurred during the period.
costs incurred in the 2) The costs that are in BWIP at the start of the period are
period under the considered to have been incurred this period.
weighted average method
of process costing?
41. What is operation Operation costing is a combination of job-order costing and process
costing? costing.
A company applies the basic operation of process costing to a
production process that produces batches of items.
Each batch follow a similar process, but the direct materials that are
input to each batch are different.
42. What is a cost driver? Anything (it can be an activity, an event, or a volume of something)
that causes costs to be incurred each time the driver occurs.
43. What are the categories of 1) Unit-level
activities in activity based 2) Batch-level
costing? 3) Product-sustaining
4) Facility-sustaining
44. What is life-cycle costing? The company takes a much longer view of the cost of production and
attempts to allocate all of the research and development, marketing,
development, after-sale service costs, and any other cost that is
associated with this product during its life cycle.
45. What are the three 1) Upstream costs
categories of costs in life- 2) Manufacturing costs
cycle costing? 3) Downstream costs
46. What is customer Customer life-cycle costing focuses on the total costs that will be paid
life-cycle costing? by the customer during the whole time the customer owns the
product: the customer’s purchase cost plus the costs to use, maintain,
and dispose of the product or service.
From the Desk of Muhammad Zain – Founder of Zain Academy Page 81 of 154
PART 1
SECTION D – Cost Management (Weightage 20%)
S.No Questions Answers
1. What are effective and An effective operation is one that achieves or exceeds the goals set for
efficient operations? the operation.
An efficient operation is one that makes effective use of its resources
in carrying out the operation.
2. What are costs and Costs are resources given up to achieve an objective.
expenses? Expenses are costs that have been charged against revenue in a
specific accounting period.
3. What are direct costs and Direct costs are costs that can be traced directly to a specific cost
cost objects? object.
A cost object is anything for which a separate cost measurement is
recorded.
4. What are fixed costs Fixed costs do not change when the level of production changes, within
and how do they behave the relevant range of production.
as production levels The total amount of these costs does not change with a change in
change? production volume. However, the cost per unit decreases as
production increases and increases as production decreases.
5. What are variable costs Variable costs are costs such as material and labor that are incurred
and how do they behave only when a product is made.
as production levels The per unit variable cost remains unchanged as production increases
change? or decreases while total variable cost increases as production
increases and decreases as production decreases.
6. What are mixed costs? Mixed costs have both a fixed and a variable component.
7. What are product costs? Product costs go directly into the production process, without which
the product could not be made.
Product costs are “attached” to each unit and will be carried on the
balance sheet as inventory when production is completed.
8. What are the three types 1) Direct materials
of costs that are product 2) Direct labor
costs? 3) Manufacturing overhead (both fixed and variable)
9. What costs are included in 1) Overhead costs like electricity, rent, depreciation
overhead costs? 2) Indirect labor
3) Indirect materials
10. What are prime costs? Prime costs are the costs of direct material and direct labor. These are
the direct inputs, or the direct costs of manufacturing.
11. What are manufacturing Manufacturing costs include prime costs and manufacturing overhead
costs? applied.
These are all of the costs that need to be incurred in order to produce
the product.
12. What are conversion Conversion costs include manufacturing overhead (both fixed and
costs? variable) and direct labor.
These are the costs that are required to convert the direct materials
into the final product.
From the Desk of Muhammad Zain – Founder of Zain Academy Page 78 of 154
, CERTIFIED MANAGEMENT ACCOUNTANT (CMA) -
PART 1
13. What are period costs? Period costs are costs for activities other than the production of the
product.
14. What are opportunity Opportunity costs are the contributions to income that are lost by not
costs? using a limited resource in its best alternative use.
15. What are sunk costs? Sunk costs are costs that have already been incurred and cannot be
recovered.
Sunk costs are irrelevant in any decision-making process because they
have already been incurred and no present or future decision can
change them.
16. What are committed Committed costs are costs for the company’s infrastructure.
costs? They are costs required to establish and maintain the readiness to do
business.
17. How is cost of goods sold Beginning finished goods inventory
calculated? + Purchases (for a reseller) or cost of goods manufactured (for
a manufacturer)
− Ending finished goods inventory
= Cost of Goods Sold
18. How is cost of goods Direct Materials Used
manufactured calculated? + Direct Labor Used
+ Manufacturing Overhead Applied
= Total Manufacturing Costs
+ Beginning Work-in-Process Inventory
− Ending Work-in-Process Inventory
= Cost of Goods Manufactured
19. What are the four main 1) Standard
cost measurement 2) Normal
systems? 3) Extended normal
4) Actual costing systems
20. What are the application Standard Rate
rate and base for direct and
materials and direct labor Standard Amount Allowed for Actual Production
under standard costing?
21. What are the application Actual Rate
rate and base for direct and
materials and direct labor Actual Amount Used for Actual Production
under normal costing?
22. What are the application Estimated Normalized Rate
rate and base for direct and
materials and Actual Amount Used for Actual Production
direct labor under
extended
normal costing?
23. What are the application Actual Rate
rate and base for direct and
materials and direct labor Actual Amount Used for Actual Production
under actual costing?
From the Desk of Muhammad Zain – Founder of Zain Academy Page 79 of 154
, CERTIFIED MANAGEMENT ACCOUNTANT (CMA) -
PART 1
24. What are the application Predetermined Standard Rate
rate and base for and
overhead under Standard Amount of application base Allowed for Actual Production
standard costing?
25. What are the application Estimated Normalized Rate
rate and base for and
overhead under Actual Amount of application base Used for Actual Production
normal & extended
normal costing?
26. What are the application Actual Rate
rate and base for and
overhead under Actual Amount of application base Used for Actual Production
actual costing?
27. How is the predetermined Budgeted Dollar Amount of Manufacturing Overhead
overhead allocation rate Budgeted Activity Level
calculated?
28. What are the four choices 1) Theoretical (or ideal) capacity
for level of activity? 2) Practical (or currently attainable) capacity
3) Master budget capacity utilization (expected actual capacity
utilization)
4) Normal capacity utilization
29. How is over-applied or Actual Costs Incurred
under-applied overhead − Factory Overhead Applied During the Period
calculated? = Under (Over) Applied Factory Overhead
30. How is an immaterial Under-applied overhead is added to COGS and over-applied overhead
amount of over- or under- is subtracted from COGS.
applied overhead closed
out?
31. How is a material amount It is distributed among the WIP Inventory, Finished Goods Inventory,
of and Cost of Goods Sold accounts.
over- or under-applied The variances are pro-rated according to the amount of overhead
overhead closed out? included in each that was allocated to the current period’s production.
32. What is the formula for Units in Beginning WIP
the physical flow of goods + Units Transferred In
in process costing? Is equal to
Units in Ending WIP
+ Units Completed/Transferred Out
33. How is the number of # Units Completed
units started and – # Units in Beginning WIP
completed calculated in = Units Started and Completed This Period
process costing?
34. How is equivalent units Completion of BWIP
produced calculated in + Started & Completed
process costing under the + Starting of EWIP
FIFO method? = EUP this period
From the Desk of Muhammad Zain – Founder of Zain Academy Page 80 of 154
, CERTIFIED MANAGEMENT ACCOUNTANT (CMA) -
PART 1
35. How is equivalent units Units Completed
produced calculated in + Starting of EWIP
process costing under the = EUP this period
weighted average
method?
36. What costs are included as Only the costs incurred during the period are considered to be costs of
costs incurred in the the period.
period under the FIFO The costs that are in BWIP for the period are transferred to finished
method of process goods.
costing?
37. What are normal and Normal spoilage is the amount that is expected from the production
abnormal spoilage? process.
Abnormal spoilage is any spoilage in excess of normal spoilage.
38. What is done with the The costs that have been allocated to the normally spoiled units are
costs allocated to normal added to the costs of the good units that are transferred out to
spoilage? finished goods (or the next department).
39. What is done with the Costs related to abnormal spoilage are expensed on the income
costs allocated to statement in the period incurred as a loss from abnormal spoilage.
abnormal spoilage?
40. What costs are included as 1) The costs actually incurred during the period.
costs incurred in the 2) The costs that are in BWIP at the start of the period are
period under the considered to have been incurred this period.
weighted average method
of process costing?
41. What is operation Operation costing is a combination of job-order costing and process
costing? costing.
A company applies the basic operation of process costing to a
production process that produces batches of items.
Each batch follow a similar process, but the direct materials that are
input to each batch are different.
42. What is a cost driver? Anything (it can be an activity, an event, or a volume of something)
that causes costs to be incurred each time the driver occurs.
43. What are the categories of 1) Unit-level
activities in activity based 2) Batch-level
costing? 3) Product-sustaining
4) Facility-sustaining
44. What is life-cycle costing? The company takes a much longer view of the cost of production and
attempts to allocate all of the research and development, marketing,
development, after-sale service costs, and any other cost that is
associated with this product during its life cycle.
45. What are the three 1) Upstream costs
categories of costs in life- 2) Manufacturing costs
cycle costing? 3) Downstream costs
46. What is customer Customer life-cycle costing focuses on the total costs that will be paid
life-cycle costing? by the customer during the whole time the customer owns the
product: the customer’s purchase cost plus the costs to use, maintain,
and dispose of the product or service.
From the Desk of Muhammad Zain – Founder of Zain Academy Page 81 of 154
