254 Managerial Accounting Practice Exam
1. Which of the following best describes a fixed cost?
A. It changes directly with the level of production.
B. It remains constant in total regardless of production levels.
C. It varies unpredictably.
D. It is only incurred when production occurs.
Answer: B
Explanation: Fixed costs remain constant in total within the relevant range, regardless of
production volume.
2. Which cost classification distinguishes costs that can be directly traced to a cost object
from those that cannot?
A. Product and period costs
B. Direct and indirect costs
C. Variable and fixed costs
D. Sunk and opportunity costs
Answer: B
Explanation: Direct costs are easily traced to a cost object, while indirect costs cannot be traced
directly.
3. In job order costing, which of the following is most accurate?
A. Costs are accumulated by department.
B. Costs are assigned to individual jobs.
C. Costs are allocated evenly across all products.
D. Only variable costs are considered.
Answer: B
Explanation: Job order costing assigns costs to individual jobs or batches.
4. Process costing is most appropriate when:
A. Products are unique and custom-made.
B. Products are homogeneous and produced in large volumes.
C. Overhead costs are minimal.
D. Products require significant customization.
Answer: B
Explanation: Process costing is used for industries with standardized, continuous production.
5. Activity-based costing (ABC) primarily focuses on:
A. Allocating costs based solely on labor hours.
B. Assigning costs based on actual activities that drive costs.
,C. Distributing fixed costs evenly among products.
D. Simplifying cost allocation by ignoring indirect costs.
Answer: B
Explanation: ABC assigns costs to products based on the activities required to produce them.
6. What is the purpose of cost allocation in managerial accounting?
A. To eliminate indirect costs.
B. To assign indirect costs to cost objects.
C. To classify costs as fixed or variable.
D. To increase overall expenses.
Answer: B
Explanation: Cost allocation assigns indirect costs to specific cost objects to measure
profitability accurately.
7. The break-even point in units is defined as the point where:
A. Total revenue equals total variable cost.
B. Total revenue equals total fixed cost.
C. Total revenue equals total costs.
D. Total fixed cost equals total variable cost.
Answer: C
Explanation: Break-even occurs when total revenues equal total costs (fixed plus variable).
8. The contribution margin per unit is calculated as:
A. Sales price minus total costs.
B. Sales price minus variable cost per unit.
C. Variable cost per unit minus fixed cost per unit.
D. Fixed cost per unit minus sales price.
Answer: B
Explanation: It is the sales price per unit less the variable cost per unit.
9. The margin of safety indicates:
A. The risk of fixed costs increasing.
B. The amount by which actual sales exceed break-even sales.
C. The level of fixed overhead absorption.
D. The proportion of fixed costs in total costs.
Answer: B
Explanation: It shows how much sales can drop before reaching the break-even point.
10. Operating leverage measures the sensitivity of:
A. Sales volume to changes in fixed costs.
B. Net income to changes in sales.
,C. Variable cost to changes in output.
D. Fixed costs to changes in variable costs.
Answer: B
Explanation: Operating leverage indicates how a percentage change in sales will affect net
income.
11. The master budget is a comprehensive financial plan that includes:
A. Only the production budget.
B. Only the sales budget and cash budget.
C. Sales, production, and cash budgets among others.
D. Only the variance analysis.
Answer: C
Explanation: The master budget integrates various individual budgets, including sales,
production, and cash budgets.
12. A flexible budget differs from a static budget in that it:
A. Is based on fixed assumptions.
B. Remains unchanged regardless of activity levels.
C. Adjusts for changes in actual activity levels.
D. Ignores variable costs.
Answer: C
Explanation: Flexible budgets adjust to reflect changes in the actual level of activity.
13. Variance analysis in budgeting is used to:
A. Prepare the master budget.
B. Compare actual results to budgeted figures.
C. Allocate fixed costs evenly.
D. Determine the break-even point.
Answer: B
Explanation: Variance analysis compares actual results with budgeted amounts to identify
discrepancies.
14. Which forecasting technique involves numerical analysis of historical data?
A. Qualitative forecasting
B. Quantitative forecasting
C. Intuitive forecasting
D. Consensus forecasting
Answer: B
Explanation: Quantitative forecasting uses historical data to predict future trends.
, 15. Standard costing involves:
A. Using actual costs to evaluate performance.
B. Setting predetermined costs as benchmarks.
C. Ignoring overhead costs.
D. Applying only to variable costs.
Answer: B
Explanation: Standard costing sets cost benchmarks to evaluate actual performance.
16. A favorable labor variance means:
A. Actual labor costs were higher than the standard.
B. Actual labor costs were lower than the standard.
C. There was no difference between actual and standard costs.
D. Standard labor hours exceeded actual hours.
Answer: B
Explanation: A favorable variance indicates that actual costs were less than the budgeted or
standard costs.
17. In responsibility accounting, performance measures are assigned to:
A. The entire organization only.
B. Individual cost centers or managers.
C. External auditors.
D. Only production departments.
Answer: B
Explanation: Responsibility accounting assigns revenues and expenses to specific managers or
centers.
18. The balanced scorecard approach includes which of the following measures?
A. Only financial measures
B. Only production measures
C. Both financial and non-financial measures
D. Only cost measures
Answer: C
Explanation: The balanced scorecard incorporates both financial and non-financial performance
indicators.
19. Net present value (NPV) in capital budgeting represents:
A. The total cash inflows of a project.
B. The discount rate at which a project breaks even.
C. The difference between the present value of cash inflows and outflows.
D. The payback period of an investment.
1. Which of the following best describes a fixed cost?
A. It changes directly with the level of production.
B. It remains constant in total regardless of production levels.
C. It varies unpredictably.
D. It is only incurred when production occurs.
Answer: B
Explanation: Fixed costs remain constant in total within the relevant range, regardless of
production volume.
2. Which cost classification distinguishes costs that can be directly traced to a cost object
from those that cannot?
A. Product and period costs
B. Direct and indirect costs
C. Variable and fixed costs
D. Sunk and opportunity costs
Answer: B
Explanation: Direct costs are easily traced to a cost object, while indirect costs cannot be traced
directly.
3. In job order costing, which of the following is most accurate?
A. Costs are accumulated by department.
B. Costs are assigned to individual jobs.
C. Costs are allocated evenly across all products.
D. Only variable costs are considered.
Answer: B
Explanation: Job order costing assigns costs to individual jobs or batches.
4. Process costing is most appropriate when:
A. Products are unique and custom-made.
B. Products are homogeneous and produced in large volumes.
C. Overhead costs are minimal.
D. Products require significant customization.
Answer: B
Explanation: Process costing is used for industries with standardized, continuous production.
5. Activity-based costing (ABC) primarily focuses on:
A. Allocating costs based solely on labor hours.
B. Assigning costs based on actual activities that drive costs.
,C. Distributing fixed costs evenly among products.
D. Simplifying cost allocation by ignoring indirect costs.
Answer: B
Explanation: ABC assigns costs to products based on the activities required to produce them.
6. What is the purpose of cost allocation in managerial accounting?
A. To eliminate indirect costs.
B. To assign indirect costs to cost objects.
C. To classify costs as fixed or variable.
D. To increase overall expenses.
Answer: B
Explanation: Cost allocation assigns indirect costs to specific cost objects to measure
profitability accurately.
7. The break-even point in units is defined as the point where:
A. Total revenue equals total variable cost.
B. Total revenue equals total fixed cost.
C. Total revenue equals total costs.
D. Total fixed cost equals total variable cost.
Answer: C
Explanation: Break-even occurs when total revenues equal total costs (fixed plus variable).
8. The contribution margin per unit is calculated as:
A. Sales price minus total costs.
B. Sales price minus variable cost per unit.
C. Variable cost per unit minus fixed cost per unit.
D. Fixed cost per unit minus sales price.
Answer: B
Explanation: It is the sales price per unit less the variable cost per unit.
9. The margin of safety indicates:
A. The risk of fixed costs increasing.
B. The amount by which actual sales exceed break-even sales.
C. The level of fixed overhead absorption.
D. The proportion of fixed costs in total costs.
Answer: B
Explanation: It shows how much sales can drop before reaching the break-even point.
10. Operating leverage measures the sensitivity of:
A. Sales volume to changes in fixed costs.
B. Net income to changes in sales.
,C. Variable cost to changes in output.
D. Fixed costs to changes in variable costs.
Answer: B
Explanation: Operating leverage indicates how a percentage change in sales will affect net
income.
11. The master budget is a comprehensive financial plan that includes:
A. Only the production budget.
B. Only the sales budget and cash budget.
C. Sales, production, and cash budgets among others.
D. Only the variance analysis.
Answer: C
Explanation: The master budget integrates various individual budgets, including sales,
production, and cash budgets.
12. A flexible budget differs from a static budget in that it:
A. Is based on fixed assumptions.
B. Remains unchanged regardless of activity levels.
C. Adjusts for changes in actual activity levels.
D. Ignores variable costs.
Answer: C
Explanation: Flexible budgets adjust to reflect changes in the actual level of activity.
13. Variance analysis in budgeting is used to:
A. Prepare the master budget.
B. Compare actual results to budgeted figures.
C. Allocate fixed costs evenly.
D. Determine the break-even point.
Answer: B
Explanation: Variance analysis compares actual results with budgeted amounts to identify
discrepancies.
14. Which forecasting technique involves numerical analysis of historical data?
A. Qualitative forecasting
B. Quantitative forecasting
C. Intuitive forecasting
D. Consensus forecasting
Answer: B
Explanation: Quantitative forecasting uses historical data to predict future trends.
, 15. Standard costing involves:
A. Using actual costs to evaluate performance.
B. Setting predetermined costs as benchmarks.
C. Ignoring overhead costs.
D. Applying only to variable costs.
Answer: B
Explanation: Standard costing sets cost benchmarks to evaluate actual performance.
16. A favorable labor variance means:
A. Actual labor costs were higher than the standard.
B. Actual labor costs were lower than the standard.
C. There was no difference between actual and standard costs.
D. Standard labor hours exceeded actual hours.
Answer: B
Explanation: A favorable variance indicates that actual costs were less than the budgeted or
standard costs.
17. In responsibility accounting, performance measures are assigned to:
A. The entire organization only.
B. Individual cost centers or managers.
C. External auditors.
D. Only production departments.
Answer: B
Explanation: Responsibility accounting assigns revenues and expenses to specific managers or
centers.
18. The balanced scorecard approach includes which of the following measures?
A. Only financial measures
B. Only production measures
C. Both financial and non-financial measures
D. Only cost measures
Answer: C
Explanation: The balanced scorecard incorporates both financial and non-financial performance
indicators.
19. Net present value (NPV) in capital budgeting represents:
A. The total cash inflows of a project.
B. The discount rate at which a project breaks even.
C. The difference between the present value of cash inflows and outflows.
D. The payback period of an investment.
