ACCT 526 Final Exam Prep (2026|2027) Advanced
Accounting Principles and Decision-Making Techniques
MultiChoice
Exam Content
Cost Analysis & Decision Making
Overhead & Cost Allocation
Financial Reporting & Performance
1. A company is considering dropping a product line. Which cost is relevant to the
decision?
A. Allocated corporate overhead
• B. Direct fixed expenses traceable to the product line
C. Sunk costs
D. Depreciation on old equipment
Rationale: Only direct fixed expenses that would be avoided if the product line is
dropped are relevant.
2. When evaluating a “keep or drop” decision, managers should focus on:
A. Total company net income
• B. Segment contribution margin
C. Allocated fixed costs
D. Historical costs
Rationale: Segment contribution margin shows whether the segment covers its
traceable fixed costs.
3. Overhead costs are applied to production using:
A. Direct tracing
• B. Application rates based on cost drivers
C. Historical averages
D. Arbitrary allocation
Rationale: Overhead is assigned using predetermined rates tied to activity drivers.
4. Direct materials and direct labor are:
• A. Traced directly to production units
B. Allocated using overhead rates
C. Considered indirect costs
D. Always variable costs
Rationale: Direct materials and labor are directly traceable to specific products.
5. Segment reporting requires disclosure of:
A. Only consolidated results
• B. Revenues, profit/loss, and assets for reportable segments
C. Managerial budgets
, D. Internal cost allocations
Rationale: GAAP requires detailed segment disclosures for transparency.
6. Analytical methods for evaluating profitability include:
A. Historical cost analysis
• B. Contribution margin and ROI analysis
C. Arbitrary allocations
D. Cash flow only
Rationale: Contribution margin and ROI are key profitability measures.
7. A company faces a special order at a lower price. The order should be accepted
if:
A. Price < average cost
• B. Price > variable cost and capacity exists
C. Price > fixed cost
D. Price > sunk cost
Rationale: As long as the order covers variable costs and doesn’t displace regular
sales, it adds profit.
8. A make-or-buy decision should consider:
A. Sunk costs
• B. Relevant variable and avoidable fixed costs
C. Allocated overhead
D. Historical purchase prices
Rationale: Only costs that change depending on the decision are relevant.
9. In a constrained resource situation, managers should prioritize products with:
A. Highest sales volume
• B. Highest contribution margin per unit of constraint
C. Lowest fixed costs
D. Highest price
Rationale: Contribution margin per unit of scarce resource maximizes profitability.
10. Which cost is irrelevant in short-term decision making?
A. Variable costs
B. Avoidable fixed costs
• C. Sunk costs
D. Opportunity costs
Rationale: Sunk costs cannot be changed and should not affect decisions.
11. A favorable variance occurs when:
A. Actual costs > budgeted costs
• B. Actual costs < budgeted costs
C. Actual revenue < budgeted revenue
D. Budgeted costs < actual costs
Rationale: Favorable means actual costs are lower or revenues higher than budget.
Accounting Principles and Decision-Making Techniques
MultiChoice
Exam Content
Cost Analysis & Decision Making
Overhead & Cost Allocation
Financial Reporting & Performance
1. A company is considering dropping a product line. Which cost is relevant to the
decision?
A. Allocated corporate overhead
• B. Direct fixed expenses traceable to the product line
C. Sunk costs
D. Depreciation on old equipment
Rationale: Only direct fixed expenses that would be avoided if the product line is
dropped are relevant.
2. When evaluating a “keep or drop” decision, managers should focus on:
A. Total company net income
• B. Segment contribution margin
C. Allocated fixed costs
D. Historical costs
Rationale: Segment contribution margin shows whether the segment covers its
traceable fixed costs.
3. Overhead costs are applied to production using:
A. Direct tracing
• B. Application rates based on cost drivers
C. Historical averages
D. Arbitrary allocation
Rationale: Overhead is assigned using predetermined rates tied to activity drivers.
4. Direct materials and direct labor are:
• A. Traced directly to production units
B. Allocated using overhead rates
C. Considered indirect costs
D. Always variable costs
Rationale: Direct materials and labor are directly traceable to specific products.
5. Segment reporting requires disclosure of:
A. Only consolidated results
• B. Revenues, profit/loss, and assets for reportable segments
C. Managerial budgets
, D. Internal cost allocations
Rationale: GAAP requires detailed segment disclosures for transparency.
6. Analytical methods for evaluating profitability include:
A. Historical cost analysis
• B. Contribution margin and ROI analysis
C. Arbitrary allocations
D. Cash flow only
Rationale: Contribution margin and ROI are key profitability measures.
7. A company faces a special order at a lower price. The order should be accepted
if:
A. Price < average cost
• B. Price > variable cost and capacity exists
C. Price > fixed cost
D. Price > sunk cost
Rationale: As long as the order covers variable costs and doesn’t displace regular
sales, it adds profit.
8. A make-or-buy decision should consider:
A. Sunk costs
• B. Relevant variable and avoidable fixed costs
C. Allocated overhead
D. Historical purchase prices
Rationale: Only costs that change depending on the decision are relevant.
9. In a constrained resource situation, managers should prioritize products with:
A. Highest sales volume
• B. Highest contribution margin per unit of constraint
C. Lowest fixed costs
D. Highest price
Rationale: Contribution margin per unit of scarce resource maximizes profitability.
10. Which cost is irrelevant in short-term decision making?
A. Variable costs
B. Avoidable fixed costs
• C. Sunk costs
D. Opportunity costs
Rationale: Sunk costs cannot be changed and should not affect decisions.
11. A favorable variance occurs when:
A. Actual costs > budgeted costs
• B. Actual costs < budgeted costs
C. Actual revenue < budgeted revenue
D. Budgeted costs < actual costs
Rationale: Favorable means actual costs are lower or revenues higher than budget.
