Core 2 CPA -Study Guide Exam with
Solved Solutions Rated A+
Prime Costs - Answer prime cost is the total direct costs of production, including raw materials
and labor
Period Costs - Answer Period costs are any costs a company incurs indirectly related to the
production process. This means they're unrelated to the cost of one product or inventory costs
for a business.
Conversion Costs - Answer Conversion costs are the total of direct labor and factory overhead
costs. They are combined because it is the labor and overhead together that convert the raw
material into the finished product.
Product Costs - Answer Product cost refers to the costs incurred to create a product. These
costs include direct labor, direct materials, consumable production supplies, and factory
overhead
discretionary costs - Answer costs that organizations have discretion in deciding whether to
fund them
Sunk Costs - Answer an investment already incurred that can't be recovered. Examples of sunk
costs in business include marketing, research, new software installation or equipment, salaries
and benefits, or facilities expenses.
Practical Capacity - Answer Practical capacity relates to the maximum output, allowing for
planned or unplanned interruptions.
Manufacturing Overhead Rate Calculation - Answer Budgeted overhead costs/cost driver
Is budgeted net profit based on sales or production - Answer All based on sales
Which of the following is an acceptable way of handling normal spoilage specific to a job?
A. Increase the cost of all good units produced in the job by the cost of the spoiled units.
B. Decrease the cost of all good units produced in the job by the cost of the spoiled units.
C. Write off the cost of spoiled units to manufacturing overhead.
D. Write off the cost of spoiled units as a period loss. - Answer A
,If a company applies overhead to jobs on the basis of a predetermined overhead rate, which of
the following statements is true if the manufacturing overhead account at the end of any period
has a debit balance?
A. More overhead cost has been incurred during the period than has been charged to jobs.
B. More overhead cost has been charged to jobs than has been incurred during the period.
C. The amount of overhead cost charged to jobs is greater than the estimated cost for the
period.
D. The amount of overhead cost charged to jobs is less than the estimated overhead cost for the
period. - Answer A
Conversion Costs calculation - Answer DL costs + MOH
What is another name for an outsourcing decision?
A. Make or buy
B. Relevant costing
C. Constrained resource
D. Special order - Answer A
In the theory of constraints, what does throughput refer to?
A. Sales dollars minus direct materials cost
B. The number of units completed in a production run
C. Sales dollars minus variable costs
D. Cost of goods sold - Answer A
Which of the following is a qualitative consideration for a scarce resource analysis?
A. Increase the quality of components used by investigating the spoiled units.
B. Bring all production in-house to have control over all parts of the manufacturing process.
C. Produce and sell the product with the highest contribution margin per constrained resource.
D. The decrease in morale from having to determine how to allocate the scarce resource. -
Answer A
Which of the following is NOT a focus of the theory of constraints?
A. Decreasing product costs
B. Decreasing investment
C. Decreasing operating costs
D. Increasing throughput - Answer A
, Which one of the following would a management accountant do when evaluating possible
courses of action as part of the short-term decision-making process?
A. Compare the financial impacts of each course of action.
B. Prepare a report summarizing the results of the courses of action.
C. Determine which course of action to pursue.
D. Prepare reports on the effects of the decision for external users. - Answer A
In the context of decision-making, which of the following statements regarding relevant
information is correct?
A. An opportunity cost is not a relevant cost.
B. An avoidable fixed cost cannot be a relevant cost.
C. A sunk cost is not a relevant cost.
D. Differential income is not a relevant income. - Answer C
A highlighter manufacturer makes yellow, orange, and green highlighters. The organization is
interested in expanding to other products and is considering adding pink highlighters to its
production mix. Which one of the following problems would NOT be relevant to the company
regarding the decision?
A. Reviewing the completeness of the data given
B. Determining the cost per unit of the current highlighters
C. Determining the variable cost per unit of the pink highlighters
D. Evaluating capacity of the organization - Answer B
If a firm has no excess capacity and a customer asks for a special order, what is the lowest price
required to accept the order?
A. The regular price because this order replaces regular business
B. The variable cost of the product
C. The variable cost plus avoidable fixed costs of the product
D. The fixed costs of the product - Answer A
Betty Scoops (Scoops) is a company deciding whether to add a new product, lipstick, to its
makeup line. Existing products include lip gloss, lip liner, and a lip mask. The additional product
requires new moulds to be created to produce the lipstick.
Which of the following factors would be considered a potential argument against adding lipstick
as a new product?
A. Scoops risks additional regulatory requirements.
B. Scoops' employees may have lower morale.
Solved Solutions Rated A+
Prime Costs - Answer prime cost is the total direct costs of production, including raw materials
and labor
Period Costs - Answer Period costs are any costs a company incurs indirectly related to the
production process. This means they're unrelated to the cost of one product or inventory costs
for a business.
Conversion Costs - Answer Conversion costs are the total of direct labor and factory overhead
costs. They are combined because it is the labor and overhead together that convert the raw
material into the finished product.
Product Costs - Answer Product cost refers to the costs incurred to create a product. These
costs include direct labor, direct materials, consumable production supplies, and factory
overhead
discretionary costs - Answer costs that organizations have discretion in deciding whether to
fund them
Sunk Costs - Answer an investment already incurred that can't be recovered. Examples of sunk
costs in business include marketing, research, new software installation or equipment, salaries
and benefits, or facilities expenses.
Practical Capacity - Answer Practical capacity relates to the maximum output, allowing for
planned or unplanned interruptions.
Manufacturing Overhead Rate Calculation - Answer Budgeted overhead costs/cost driver
Is budgeted net profit based on sales or production - Answer All based on sales
Which of the following is an acceptable way of handling normal spoilage specific to a job?
A. Increase the cost of all good units produced in the job by the cost of the spoiled units.
B. Decrease the cost of all good units produced in the job by the cost of the spoiled units.
C. Write off the cost of spoiled units to manufacturing overhead.
D. Write off the cost of spoiled units as a period loss. - Answer A
,If a company applies overhead to jobs on the basis of a predetermined overhead rate, which of
the following statements is true if the manufacturing overhead account at the end of any period
has a debit balance?
A. More overhead cost has been incurred during the period than has been charged to jobs.
B. More overhead cost has been charged to jobs than has been incurred during the period.
C. The amount of overhead cost charged to jobs is greater than the estimated cost for the
period.
D. The amount of overhead cost charged to jobs is less than the estimated overhead cost for the
period. - Answer A
Conversion Costs calculation - Answer DL costs + MOH
What is another name for an outsourcing decision?
A. Make or buy
B. Relevant costing
C. Constrained resource
D. Special order - Answer A
In the theory of constraints, what does throughput refer to?
A. Sales dollars minus direct materials cost
B. The number of units completed in a production run
C. Sales dollars minus variable costs
D. Cost of goods sold - Answer A
Which of the following is a qualitative consideration for a scarce resource analysis?
A. Increase the quality of components used by investigating the spoiled units.
B. Bring all production in-house to have control over all parts of the manufacturing process.
C. Produce and sell the product with the highest contribution margin per constrained resource.
D. The decrease in morale from having to determine how to allocate the scarce resource. -
Answer A
Which of the following is NOT a focus of the theory of constraints?
A. Decreasing product costs
B. Decreasing investment
C. Decreasing operating costs
D. Increasing throughput - Answer A
, Which one of the following would a management accountant do when evaluating possible
courses of action as part of the short-term decision-making process?
A. Compare the financial impacts of each course of action.
B. Prepare a report summarizing the results of the courses of action.
C. Determine which course of action to pursue.
D. Prepare reports on the effects of the decision for external users. - Answer A
In the context of decision-making, which of the following statements regarding relevant
information is correct?
A. An opportunity cost is not a relevant cost.
B. An avoidable fixed cost cannot be a relevant cost.
C. A sunk cost is not a relevant cost.
D. Differential income is not a relevant income. - Answer C
A highlighter manufacturer makes yellow, orange, and green highlighters. The organization is
interested in expanding to other products and is considering adding pink highlighters to its
production mix. Which one of the following problems would NOT be relevant to the company
regarding the decision?
A. Reviewing the completeness of the data given
B. Determining the cost per unit of the current highlighters
C. Determining the variable cost per unit of the pink highlighters
D. Evaluating capacity of the organization - Answer B
If a firm has no excess capacity and a customer asks for a special order, what is the lowest price
required to accept the order?
A. The regular price because this order replaces regular business
B. The variable cost of the product
C. The variable cost plus avoidable fixed costs of the product
D. The fixed costs of the product - Answer A
Betty Scoops (Scoops) is a company deciding whether to add a new product, lipstick, to its
makeup line. Existing products include lip gloss, lip liner, and a lip mask. The additional product
requires new moulds to be created to produce the lipstick.
Which of the following factors would be considered a potential argument against adding lipstick
as a new product?
A. Scoops risks additional regulatory requirements.
B. Scoops' employees may have lower morale.
