Question 1

Marginal costing is a …………….

Accepted Answer

Marginal costing is a technique of costing used to provide a basis for the interpretation of cost data to measure the profitability of different cost centers by differentiating between fixed costs and variable costs.

Question 2

Contribution is known as ………..

Accepted Answer

Contribution is known as marginal income, which is the income generated from each additional unit sold, essentially the difference between sales revenue and variable costs.

Question 3

Margin of safety may be improved by

Accepted Answer

The margin of safety can be improved by increasing sales volume, lowering variable costs, or lowering fixed costs. Each of these actions helps to increase the difference between actual sales and the break-even point, thereby improving the margin of safety.

Question 4

PV ratio may be improved by

Accepted Answer

The answer of PV ratio may be improved by
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Question 5

For decision making purpose, which is more suitable to the management

Accepted Answer

Marginal costing is more suitable for decision-making purposes because it helps in determining the impact of different levels of costs and volume on operating profit. It focuses on the costs that change with the level of output (variable costs) and is useful for short-term decision-making processes like pricing, make or buy decisions, and product mix decisions.

Question 6

Increasing in selling price

Accepted Answer

The answer of Increasing in selling price
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Question 7

Increase in variable cost

Accepted Answer

An increase in variable cost does not increase the PV (Profit Volume) ratio, decrease the breakeven point, or increase the margin of safety. Instead, it typically has the opposite effects: it can decrease the PV ratio, increase the breakeven point, and decrease the margin of safety, making D the correct choice.

Question 8

Marginal costing technique helps the management in deciding

Accepted Answer

Marginal costing provides insights into the variable costs associated with production, aiding in pricing, make-or-buy decisions, and evaluating the profitability of accepting new orders at lower prices.

Question 9

Which of the following is true at breakeven point

Accepted Answer

At the breakeven point, all three statements are true: the contribution equals fixed costs, sales equal total costs, and the sales curve intersects the total cost line, indicating no profit or loss.

Question 10

Activity-based costing:

Accepted Answer

Activity-based costing (ABC) uses multiple activity rates to more accurately assign overhead costs to products or services based on the specific activities that each requires. This contrasts with traditional costing methods that might use a single plant-wide overhead rate or direct labor-hours as the basis for overhead allocation. ABC recognizes that different products consume different resources and activities, and thus, it aims to assign costs more precisely based on those consumptions.

Question 11

Assigning overhead using ABC often:

Accepted Answer

Assigning overhead using Activity-Based Costing (ABC) often shifts overhead costs from high-volume products to low-volume products because it allocates costs based on the actual activities that drive those costs, rather than distributing them uniformly across all products. This method recognizes that low-volume products often require more specialized activities, which can be more costly.

Question 12

Painting the product would be an example of which activity level groups

Accepted Answer

Painting the product is a unit-level activity because it is performed each time a unit is produced.

Question 13

Plant depreciation is an example of which activity-level group?

Accepted Answer

Plant depreciation is considered a facility-level activity because it is associated with costs that do not change with the volume of production within the facility. These costs are incurred regardless of the number of units produced, batches run, or different products made.

Question 14

Assume that a company produces two products in a manufacturing plant. One is a low volume specialty product that is produced on a demand pull basis, while the other is a high volume product that is produced on a push basis for inventory. A production volume based cost allocation system would tend to

Accepted Answer

The answer of Assume that a company produces two products...

Question 15

In the situation stated in the question above, the company's net income based on a production volume based system will tend to be ________ relative to net income based on an activity based costing system.

Accepted Answer

The answer of In the situation stated in the question...

Question 16

Cooper and Kaplan recommend using which of the following as the basis, or denominator, when developing activity cost pool rates for activity based costing.

Accepted Answer

Cooper and Kaplan, who are pioneers in the field of Activity-Based Costing (ABC), recommend using the practical capacity of each activity as the basis for developing activity cost pool rates. Practical capacity refers to the maximum amount of work that can be done, taking into account unavoidable interruptions, and it provides a more realistic basis for allocating costs compared to theoretical maximum or normal capacities.

Question 17

Which of the following is not an argument for using a separate stand alone system for activity based costing, i.e., rather than integrating ABC with the general ledger system used for GAAP?

Accepted Answer

GAAP product costs and ABC product costs serve different purposes. GAAP costs are designed for external reporting and may not accurately reflect the actual costs of activities and resources used by products, which is what ABC aims to do. Thus, the argument that GAAP product costs may be incorrect relative to ABC product costs does not support the use of a separate stand-alone system for ABC; rather, it highlights a fundamental difference in the purpose and methodology of the two costing systems.

Question 18

Which of the following arguments support integrating ABC with the general ledger system used for GAAP, rather than using a separate stand alone ABC system?

Accepted Answer

All of the options provided (A, B, and C) support the argument for integrating Activity-Based Costing (ABC) with the general ledger system used for Generally Accepted Accounting Principles (GAAP) rather than maintaining a separate, standalone ABC system. Integrating the systems can streamline processes, reduce confusion, and eliminate redundancy in information and staffing.

Question 19

Which of the following types of characteristics tend to cause too little overhead costs to be charged to the product using traditional cost allocations?

Accepted Answer

Traditional cost allocation methods often allocate overhead based on volume-related measures, such as labor hours or machine hours. Therefore, products that are small or have low volume may not absorb their fair share of overhead costs, leading to too little overhead being charged to these products. Simple products, however, are not specifically related to the allocation issue described, as complexity does not directly impact volume-based allocation methods.

Question 20

Which audience was activity based costing originally designed to serve?

Accepted Answer

The answer of Which audience was activity based costing originally...

Quiz 1: Marginal Costing, Contribution, and Activity-Based Costing Techniques