D196 Exam 2: Principles of Financial and Managerial
Accounting Verified and Latest Questions and Answers
1. What is the primary objective of managerial accounting?
A. To provide information to external users like creditors and investors.
B. To ensure the company complies with GAAP for tax purposes.
C. To calculate the net worth of a company for public disclosure.
D. To provide internal reports for planning, directing, and controlling.
Answer: D
Explanation: Managerial accounting focuses on providing internal managers with
information necessary for planning, decision-making, and controlling operations.
2. Which cost remains constant in total but decreases per unit as activity
increases?
A. Variable cost
B. Direct material cost
C. Mixed cost
D. Fixed cost
Answer: D
Explanation: Total fixed costs remain unchanged regardless of the activity level within a
relevant range, causing the cost per unit to drop as volume increases.
,3. What is the formula for the contribution margin ratio?
A. Sales / Variable Costs
B. Contribution Margin / Sales
C. (Sales - Fixed Costs) / Sales
D. Net Income / Sales
Answer: B
Explanation: The contribution margin ratio is calculated by dividing the contribution
margin (Sales minus Variable Costs) by Sales.
4. A company has a selling price of $50, variable costs of $30, and fixed costs of
$20,000. What is the break-even point in units?
A. 400 units
B. 1,000 units
C. 667 units
D. 2,000 units
Answer: B
Explanation: Break-even units = Fixed Costs / (Selling Price - Variable Cost). Here, $20,000
/ ($50 - $30) = $20,000 / $20 = 1,000 units.
5. Which of the following is a characteristic of a job order costing system?
A. It is used for mass production of identical items.
B. It is used for unique, custom-made products.
C. Costs are accumulated by department.
D. It averages costs over all units produced in a period.
Answer: B
Explanation: Job order costing is used when products are unique or manufactured to
specific customer orders.
, 6. In process costing, what are equivalent units?
A. Units that are completely finished and sold.
B. The total number of units started in a period.
C. Units that are damaged during the production process.
D. A measure used to convert partially completed units into finished units.
Answer: D
Explanation: Equivalent units express partially completed work in terms of fully
completed units to assign costs accurately at the end of a period.
7. What is the main advantage of Activity-Based Costing (ABC) over traditional
costing?
A. It is simpler and cheaper to implement.
B. It follows GAAP for external reporting.
C. It provides more accurate product costing by using multiple cost pools.
D. It ignores indirect costs to focus on direct labor.
Answer: C
Explanation: ABC improves accuracy by identifying activities that drive overhead and
assigning costs based on those activities rather than a single plant-wide rate.
8. Which budget is considered the starting point for the master budget process?
A. Production budget
B. Sales budget
C. Cash budget
D. Capital expenditure budget
Answer: B
Explanation: The sales budget is the foundation of the master budget because production
and other activities depend on the expected sales volume.
Accounting Verified and Latest Questions and Answers
1. What is the primary objective of managerial accounting?
A. To provide information to external users like creditors and investors.
B. To ensure the company complies with GAAP for tax purposes.
C. To calculate the net worth of a company for public disclosure.
D. To provide internal reports for planning, directing, and controlling.
Answer: D
Explanation: Managerial accounting focuses on providing internal managers with
information necessary for planning, decision-making, and controlling operations.
2. Which cost remains constant in total but decreases per unit as activity
increases?
A. Variable cost
B. Direct material cost
C. Mixed cost
D. Fixed cost
Answer: D
Explanation: Total fixed costs remain unchanged regardless of the activity level within a
relevant range, causing the cost per unit to drop as volume increases.
,3. What is the formula for the contribution margin ratio?
A. Sales / Variable Costs
B. Contribution Margin / Sales
C. (Sales - Fixed Costs) / Sales
D. Net Income / Sales
Answer: B
Explanation: The contribution margin ratio is calculated by dividing the contribution
margin (Sales minus Variable Costs) by Sales.
4. A company has a selling price of $50, variable costs of $30, and fixed costs of
$20,000. What is the break-even point in units?
A. 400 units
B. 1,000 units
C. 667 units
D. 2,000 units
Answer: B
Explanation: Break-even units = Fixed Costs / (Selling Price - Variable Cost). Here, $20,000
/ ($50 - $30) = $20,000 / $20 = 1,000 units.
5. Which of the following is a characteristic of a job order costing system?
A. It is used for mass production of identical items.
B. It is used for unique, custom-made products.
C. Costs are accumulated by department.
D. It averages costs over all units produced in a period.
Answer: B
Explanation: Job order costing is used when products are unique or manufactured to
specific customer orders.
, 6. In process costing, what are equivalent units?
A. Units that are completely finished and sold.
B. The total number of units started in a period.
C. Units that are damaged during the production process.
D. A measure used to convert partially completed units into finished units.
Answer: D
Explanation: Equivalent units express partially completed work in terms of fully
completed units to assign costs accurately at the end of a period.
7. What is the main advantage of Activity-Based Costing (ABC) over traditional
costing?
A. It is simpler and cheaper to implement.
B. It follows GAAP for external reporting.
C. It provides more accurate product costing by using multiple cost pools.
D. It ignores indirect costs to focus on direct labor.
Answer: C
Explanation: ABC improves accuracy by identifying activities that drive overhead and
assigning costs based on those activities rather than a single plant-wide rate.
8. Which budget is considered the starting point for the master budget process?
A. Production budget
B. Sales budget
C. Cash budget
D. Capital expenditure budget
Answer: B
Explanation: The sales budget is the foundation of the master budget because production
and other activities depend on the expected sales volume.
