CPA Core 2 – Complete Exam Study Guide 2026/2027 with Verified Answers | Newest Version. A+

CPA Core 2-Exam Study Guide with
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Costs of Inventory ------- ✔ CORRECT ANSWER ✓✓Direct labour

Manufacturing overhead

Direct materials



Prime Costs ------- ✔ CORRECT ANSWER ✓✓Direct Materials + Direct Labor



Conversion Costs ------- ✔ CORRECT ANSWER ✓✓Direct Labor + Manufacturing Overhead



Fixed Costs ------- ✔ CORRECT ANSWER ✓✓Remain constant regardless of activity level



Mixed Costs ------- ✔ CORRECT ANSWER ✓✓Possess both variable and fixed costs



Variable Costs ------- ✔ CORRECT ANSWER ✓✓Vary in proportion to changes in activity



Total Cost (TC) ------- ✔ CORRECT ANSWER ✓✓Unit Variable Cost (FC) + Fixed Cost (VC)



Steps in high-low method of estimating costs ------- ✔ CORRECT ANSWER ✓✓Step 1: Select high
and low points of activity

Step 2: Determine variable cost

Step 3: Determine fixed cost using either high or low activity level to solve cost function

,Step 4: Determine cost function



Job Costing ------- ✔ CORRECT ANSWER ✓✓Direct materials & Direct labour (Traced):

> WIP inventory

> finished goods inventory

> COGS



Manufacturing overhead (Allocated):

> WIP inventory

> Finished goods inventory

> COGS



Steps in Job Costing ------- ✔ CORRECT ANSWER ✓✓Step 1: Identify the cost object/job

Step 2: Assign direct materials and direct labour

Step 3: Allocate manufacturing overhead



Manufacturing Overhead Rate ------- ✔ CORRECT ANSWER ✓✓Budgeted manufacturing
overhead costs / Cost driver (denominator activity)



Cost Driver Activity Choices ------- ✔ CORRECT ANSWER ✓✓- Actual activity

- Estimated activity

- Normal activity level (average activity of the cost driver across different accounting periods)

- practical capacity (theoretical capacity level from which ordinary losses due to break periods,
maintenance, and an allowance breakdowns are subtracted)



Contribution Margin ------- ✔ CORRECT ANSWER ✓✓Sales - Variable Costs

,Contribution Margin Ratio ------- ✔ CORRECT ANSWER ✓✓Contribution Margin / Sales



Traditional Format Income Statement ------- ✔ CORRECT ANSWER ✓✓Sales

(-) Cost of goods Sold

= Gross Margin

(-) Selling & Admin Expenses

= Operating Income



Contribution Margin Income Statement ------- ✔ CORRECT ANSWER ✓✓Sales

(-) Variable costs

= Contribution margin

(-) Fixed costs

= Operating Income



Break-Even Point - Single Product (Units) ------- ✔ CORRECT ANSWER ✓✓Fixed costs /
Contribution margin per unit



Break-Even Point - Single Product (Dollars) ------- ✔ CORRECT ANSWER ✓✓Fixed costs /
Contribution margin ratio



Break-Even Point - Multiple Products (Units) ------- ✔ CORRECT ANSWER ✓✓Fixed costs / WACM
per unit



Break-Even Point - Multiple Products (Dollars) ------- ✔ CORRECT ANSWER ✓✓Fixed costs /
WACM per ratio

, Target Profit Sales (Units) ------- ✔ CORRECT ANSWER ✓✓(Fixed costs + Target profit) / CM per
unit



Target Profit Sales (Dollars) ------- ✔ CORRECT ANSWER ✓✓(Fixed costs + Target profit) / CM
ratio



Margin of Safety (Units) ------- ✔ CORRECT ANSWER ✓✓Expected units - break-even units



Margin of Safety (Dollars) ------- ✔ CORRECT ANSWER ✓✓Expected sales - break-even sales



Margin of Safety (Percentage) ------- ✔ CORRECT ANSWER ✓✓(Expected Sales - Break-even
sales) / Expected sales



Operating Leverage ------- ✔ CORRECT ANSWER ✓✓Degree of operating leverage (DOL) = CM /
operating income



Decision Making Process ------- ✔ CORRECT ANSWER ✓✓Step 1: Identify the problem

Step 2: Evaluate possible courses of action

Step 3: Make the decision

Step 4: Review results



Relevant Revenues ------- ✔ CORRECT ANSWER ✓✓Revenues that can be gained or lost
depending on the decision



Relevant Variable Costs ------- ✔ CORRECT ANSWER ✓✓- Variable costs that can be avoided,
such as direct materials, hourly direct labour, variable manufacturing overhead, and variable
selling costs