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| Section | Weight | Objectives |
|---|---|---|
| Topic 1: Profit Planning | 10–15% | - Cost-volume-profit (CVP) analysis
|
| Topic 2: Cost Systems | 20–25% | - Costing methods
|
| Topic 3: Controls and Regulations | 10–15% | - Internal control systems and principles
|
| Topic 4: Budgeting and Decision Making | 10–15% | - Master budget and components
|
| Topic 5: Financial Analysis | 45–50% | - Financial statement analysis techniques
|
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NEW QUESTION # 52
Which overhead cost is associated with batch-level activities?
Answer: A
Explanation:
The correct answer is B. Machine setups . In activity-based costing , batch-level activities are performed each time a batch of goods is processed, regardless of how many units are in that batch. A classic example is the machine setup required before production of a batch can begin. ABC materials commonly identify setup costs as batch-level because the activity occurs per batch rather than per individual unit.
Option A, property taxes , and Option C, factory insurance , are usually considered facility-level or organization-sustaining overhead because they support the factory as a whole rather than a specific batch.
Option D, product engineering wages , is more closely related to product-level activities , since engineering work often supports a particular product line rather than each batch run. Batch-level costs increase with the number of production batches, not necessarily with the number of units produced. Since machine setups are incurred each time a batch is started, they are the standard example of a batch-level overhead cost. Therefore, Option B is the correct answer.
NEW QUESTION # 53
A company has three product lines and has historically used the traditional costing system to allocate overhead costs to each product line. Due to significant differences in the production processes for the three product lines, the company implemented an activity-based costing study and identified the activity-based cost for each product, as shown in the following table.
Product A
Product B
Product C
Traditional cost per unit
$558
$1,375
$1,211
Activity-based cost per unit
$675
$1,585
$1,350
Selling price per unit
$650
$1,450
$1,300
What do these data points reveal about the selling price of this company's products?
Answer: C
Explanation:
The correct answer is C. The selling price should increase for all three products . The key point of activity- based costing (ABC) is that it often gives a more accurate view of overhead consumption than traditional costing, especially when products differ significantly in production complexity. ABC is designed to provide more precise overhead assignment by using multiple cost drivers.
Compare each product's selling price with its activity-based cost per unit :
Product A: Selling price $650, ABC cost $675 # underpriced by $25
Product B: Selling price $1,450, ABC cost $1,585 # underpriced by $135
Product C: Selling price $1,300, ABC cost $1,350 # underpriced by $50
All three products have selling prices below their ABC-based unit costs. That means each product appears to be priced too low if the ABC study more accurately reflects the resources consumed. Therefore, each product' s selling price should be reconsidered upward.
This question illustrates why companies adopt ABC in the first place: traditional costing can hide cross- subsidization among products, while ABC can reveal that multiple product lines are actually less profitable than previously believed. Therefore, Option C is correct.
NEW QUESTION # 54
Which financial statement is used to determine a company's income and expenses for a specific period?
Answer: B
Explanation:
The correct answer is D. Income statement . The income statement reports a company's revenues and expenses over a specific period of time and shows whether the company earned a profit or incurred a loss during that period. Standard accounting materials explain that the income statement summarizes revenue and expense activity and presents net income or net loss for the reporting period.
Option A, the balance sheet , is incorrect because it shows financial position at a particular date rather than performance over a period. Option B, the statement of retained earnings , explains changes in retained earnings, including the effects of net income and dividends, but it does not serve as the main report for listing revenues and expenses. Option C, the statement of cash flows , focuses on cash inflows and outflows from operating, investing, and financing activities rather than accrual-based income and expense measurement. In accounting, when the question asks which statement is used to determine income and expenses for a period, the income statement is the direct and correct answer. That is why Option D is the best answer.
NEW QUESTION # 55
What does it mean if a company has a debt ratio of 101.5%?
Answer: A
Explanation:
The correct answer is B. The company has 1.5% more total liabilities than total assets . The debt ratio is calculated as:
Debt ratio = Total liabilities / Total assets
If the debt ratio is 101.5% , or 1.015 , that means total liabilities are 101.5% of total assets . In other words, liabilities are slightly greater than assets. Specifically, the company has 1.5% more liabilities than assets .
This is an important financial warning sign because it suggests the company may have negative equity .
Since the accounting equation is:
Assets = Liabilities + Owners' equity
if liabilities exceed assets, then owners' equity must be negative. That can indicate financial distress, accumulated losses, or a highly leveraged position.
Option A is incorrect because the debt ratio does not compare liabilities to sales. Option C is incorrect because it does not compare liabilities to net income. Option D is incorrect because the debt ratio uses total liabilities and total assets , not current liabilities and current assets. Therefore, the only correct interpretation of a 101.5% debt ratio is that total liabilities exceed total assets by 1.5% , making Option B correct.
NEW QUESTION # 56
Last year, X Corporation had sales of $500,000 and total expenses of $300,000. A manager of the company is entitled to get a sales commission of 10% of net profit.
What amount of sales commission is to be recognized at year-end?
Answer: C
Explanation:
The correct answer is A. $20,000 . First, calculate net profit before the commission:
Net profit = Sales - Total expenses = $500,000 - $300,000 = $200,000
The manager's commission is 10% of net profit , so:
Commission = 10% × $200,000 = $20,000
Therefore, the amount to recognize at year-end is $20,000 . Under accrual accounting, expenses are recognized in the period in which they are incurred, even if they have not yet been paid. Since the company earned the profit during the year and the manager became entitled to the commission based on that profit, the commission expense should be recorded at year-end in the same reporting period. This follows the matching concept, which aligns expenses with the revenues they helped generate.
Option B is incorrect because it represents 10% of sales, not net profit. Option C and Option D do not match the 10% commission calculation based on the stated profit amount. Since the problem clearly says the commission is based on net profit , the correct recognized amount is $20,000 , making Option A correct.
Accounting texts describe net profit as revenues minus expenses.
NEW QUESTION # 57
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