Integration + Objectivity for Internal Auditors casebased MCQ

 Integration + Objectivity for Internal Auditors

CIA Part 1 – 2025 New Syllabus: Domain I – Foundations of Internal Auditing

Topic: Integration + Objectivity for Internal Auditors  

*Standard Ref*: IIA Global Internal Audit Standards 2024 – Principle 2: Integrity, Objectivity, and Due Professional Care; Standard 2.1 Integrity, 2.2 Objectivity; Domain III Standard 9.1 Understanding Governance, Risk, Control

*CASE-BASED MCQ: Integration & Objectivity*

*Case:*  

You are an internal auditor at TechNova Inc. You previously worked in the Accounts Payable department for 3 years and transferred to Internal Audit 6 months ago. 

The Chief Audit Executive assigns you to lead an assurance engagement of the “Procure-to-Pay” process, which includes AP controls you helped design and implement 1 year ago. 

During planning, management asks you to also “co-source” with the AP team to redesign a new vendor onboarding workflow because of your prior expertise. The new workflow will go live next quarter and will be part of your audit scope.

*Q1. What is the MOST appropriate action to maintain objectivity under the 2025 Global Internal Audit Standards?*  

A. Accept both roles because your AP expertise will increase audit quality and integration.  

B. Accept the audit assignment but disclose prior involvement and decline the redesign role to avoid impairment.  

C. Decline the audit assignment due to impairment, but you may perform the redesign since it’s consulting.  

D. Accept both roles if CAE approves and you document safeguards in workpapers.  

Answer: 

*CASE 2: Integration with Business Strategy*

*Case:*  

Internal Audit is asked to join the “Digital Transformation Steering Committee” as a voting member. The committee makes decisions on system selection and project funding. The CAE believes this will help integrate audit with strategy and provide real-time risk input.

*Q2. Under CIA Part 1 2025 syllabus, what should the CAE do to maintain objectivity while achieving integration?*  

A. Accept voting membership because audit must be integrated with strategy.  

B. Decline all participation to preserve independence.  

C. Accept as non-voting advisor/observer to provide risk insight without decision-making authority.  

D. Accept voting if audit discloses it in the audit report.  

Answer: 

*KEY CIA PART 1 2025 CONCEPTS TESTED*

**Concept** **Rule – New Standards** **Impairment Trigger**

**Objectivity** Std 2.2: Must be impartial, unbiased Auditing own work within 1 year

**Integration** Audit understands business, provides insight Assuming mgmt decision-making

**Safeguards** Disclosure, reassignment, supervision Cannot cure auditing own work <1yr

**Consulting vs Assurance** Can consult if no mgmt responsibility Performing design + later audit = impairment

**Cooling-off Period** 1 year for prior operational roles Less than 1 year = must decline/assign other

*EXAM TIP: “Integration vs Independence” Questions*

CIA Part 1 2025 loves this distinction:  

1. *Integration = Good*: Know the business, advise, be proactive.  

2. *Independence/Objectivity = Required*: Don’t decide, don’t implement, don’t audit own work.  

3. *Red flag words*: “voting member”, “design”, “implement”, “approve”, “auditing own area <1 year” = impairment.  

4. *Correct answer*: Usually “advise/observer” or “disclose + reassign”.

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*100 MCQs – US CMA Part 1 + ACCA FMA/F2 Foundation* ANSWERS PROVIDED AT THE END....

100 MCQs – US CMA Part 1 + ACCA FMA/F2 Foundation* ANSWERS PROVIDED AT THE END....

*Coverage*: Financial Reporting, Cost Accounting Basics, AIS, Business Acumen, Stakeholders, Cost Types  

*Format*: 100 Qs + Answer Key with 1-line rationale. Use for practice. Target: 90 min.

*PART 1: FINANCIAL REPORTING BASICS – 25 Qs*

*Q1.* Which accounting principle requires expenses matched with revenues?  

A. Consistency  B. Matching  C. Materiality  D. Conservatism  

*Q2.* Under US GAAP, inventory is valued at:  

A. Cost only  B. NRV only  C. Lower of cost or NRV  D. Lower of cost or market  

*Q3.* Which is NOT a component of Equity?  

A. Retained Earnings  B. Common Stock  C. Treasury Stock  D. Bonds Payable  

*Q4.* Depreciation is an example of:  

A. Cash outflow  B. Non-cash expense  C. Revenue  D. Liability  

*Q5.* Issued Capital – Subscribed Capital = ?  

A. Authorized capital  B. Unissued capital  C. Calls in arrears  D. Paid-up capital  

*Q6.* 10% Stock dividend when MV $20, Par $10. For 1,000 shares issued, RE debit = ?  

A. $10,000  B. $20,000  C. $2,000  D. $1,000  

*Q7.* Trading securities unrealized gain/loss goes to:  

A. OCI  B. I/S  C. RE directly  D. B/S only  

*Q8.* ASC 606 Step 3 is:  

A. Identify contract  B. Identify PO  C. Determine transaction price  D. Allocate price  

*Q9.* Finance lease criteria: Lease term = 80% of economic life. Classification?  

A. Operating  B. Finance  C. Sales-type  D. Short-term  

*Q10.* Bad debt written off, later recovered. Entry:  

A. Dr Cash, Cr Bad Debt Expense  

B. Dr Cash, Cr Bad Debt Recovery  

C. Dr A/R, Cr Allowance, then Dr Cash, Cr A/R  

D. Both B and C acceptable  

*Q11.* Purchase commitment loss recognized when:  

A. Contract signed  

B. MV < Contract price + loss probable  

C. Goods received  

D. Never  

*Q12.* Entity Theory states:  

A. Business = owner  B. Assets = Equities  C. Profit belongs to owner only  D. No separate entity  

*Q13.* Financial Capital Maintenance = profit if:  

A. Physical units maintained  B. Ending net assets > Beg net assets in $  

C. Cash increased  D. Sales increased  

*Q14.* Which is current liability?  

A. Bonds due 2029  B. Deferred tax liability  C. Wages payable  D. Lease liability >12mo  

*Q15.* Warranty expense is recorded in period of:  

A. Payment  B. Sale  C. Claim  D. End of warranty  

*Q16.* CFO Indirect method starts with:  

A. Sales  B. Net Income  C. EBIT  D. Gross Profit  

*Q17.* Increase in A/R effect on CFO:  

A. Add  B. Subtract  C. No effect  D. Only if cash basis  

*Q18.* Intercompany profit in ending inventory must be:  

A. Ignored  B. Eliminated  C. Taxed  D. Added to NCI  

*Q19.* Annual Report primary users under IFRS Framework:  

A. Tax authorities  B. Existing & potential investors, lenders  

C. Employees  D. Government  

*Q20.* Which is NOT qualitative characteristic?  

A. Relevance  B. Faithful representation  C. Conservatism  D. Comparability  

*Q21.* Sum-of-years digits, life 4 yrs, Year 1 fraction = ?  

A. 4/10  B. 1/4  C. 4/12  D. 1/10  

*Q22.* DDB ignores salvage value until:  

A. Never  B. First year  C. Last year  D. Always  

*Q23.* Excess tax provision last year adjusted by:  

A. Dr Tax Expense, Cr Tax Payable  

B. Dr Tax Payable, Cr RE prior period adj  

C. Ignore  D. Dr Tax Payable, Cr Tax Expense  

*Q24.* HTM bond amortized cost increases when:  

A. Discount bond  B. Premium bond  C. Market falls  D. Sold  

*Q25.* Stakeholder with no financial claim but interest:  

A. Shareholder  B. Creditor  C. Community  D. Bank  

---

*PART 2: COST ACCOUNTING BASICS & COST TYPES – 35 Qs*

*Q26.* Prime Cost =  

A. DM + DL  B. DL + MOH  C. DM + MOH  D. All costs  

*Q27.* Conversion Cost =  

A. DM + DL  B. DL + MOH  C. DM + MOH  D. Period cost  

*Q28.* Rent of factory building is:  

A. Direct cost  B. Period cost  C. Product fixed OH  D. Variable cost  

*Q29.* Salary of CEO is:  

A. Product cost  B. Period cost  C. Direct labor  D. MOH  

*Q30.* Cost that changes with activity but not proportionately:  

A. Fixed  B. Variable  C. Mixed  D. Step  

*Q31.* Committed fixed cost example:  

A. Advertising  B. Depreciation  C. Training  D. Sales commission  

*Q32.* Opportunity cost is:  

A. Recorded in books  B. Relevant for decision  C. Sunk cost  D. Always cash  

*Q33.* Sunk cost is:  

A. Future cost  B. Relevant  C. Irrelevant  D. Avoidable  

*Q34.* Absorption costing treats fixed OH as:  

A. Period cost  B. Product cost  C. Expense  D. Asset only  

*Q35.* When production > sales, which NOI higher?  

A. Variable  B. Absorption  C. Same  D. Depends  

*Q36.* High-low method weakness:  

A. Too accurate  B. Uses only 2 points  C. Complex  D. Needs regression  

*Q37.* Normal capacity based on:  

A. Max output  B. Long-term average demand  C. Current year  D. Zero downtime  

*Q38.* Under-applied OH means:  

A. Actual < Applied  B. Actual > Applied  C. No variance  D. Favorable  

*Q39.* Job costing used for:  

A. Oil refining  B. Custom furniture  C. Flour  D. Chemicals  

*Q40.* Process costing WIP equivalent units needed because:  

A. No WIP  B. Partially complete units  C. Only FG  D. Job order  

*Q41.* Abnormal spoilage is:  

A. Product cost  B. Period loss  C. Added to good units  D. Ignored  

*Q42.* Joint cost split-off point means:  

A. Products identifiable  B. Costs end  C. Sales begin  D. Separable costs start  

*Q43.* By-product accounting method:  

A. Allocate joint cost  B. NRV reduces main product cost  C. No entry  D. Always material  

*Q44.* Activity-based costing allocates OH using:  

A. One rate  B. Multiple cost drivers  C. DL hours only  D. Machine hours only  

*Q45.* Cost pool is:  

A. Single product  B. Group of costs with same driver  C. Direct cost  D. Period cost  

*Q46.* Unit-level activity:  

A. Setup  B. Drilling hole  C. Product design  D. Factory rent  

*Q47.* Throughput =  

A. SP – DM  B. SP – VC  C. SP – Total cost  D. GP  

*Q48.* Target costing: Price $100, Profit $20, Target cost = ?  

A. $120  B. $80  C. $100  D. $20  

*Q49.* Life-cycle cost includes:  

A. Production only  B. R&D to disposal  C. Selling only  D. Warranty only  

*Q50.* Kaizen costing aims for:  

A. One big cut  B. Continuous small cuts  C. Zero base  D. Standard cost  

*Q51.* Direct material is:  

A. Always variable  B. Can be fixed  C. Period cost  D. MOH  

*Q52.* Indirect labor is part of:  

A. DM  B. DL  C. MOH  D. SG&A  

*Q53.* Variable cost per unit:  

A. Changes with volume  B. Constant per unit  C. Zero  D. Changes total only  

*Q54.* Fixed cost per unit:  

A. Constant  B. Decreases as volume ↑  C. Increases as volume ↑  D. Zero  

*Q55.* Mixed cost example:  

A. Rent  B. DM  C. Utility with base + usage  D. Depreciation  

*Q56.* Relevant range is:  

A. 0 to infinity  B. Activity where cost behavior valid  C. Always 1 year  D. Budget range  

*Q57.* Controllable cost for dept manager:  

A. Allocated HQ rent  B. Dept supplies  C. Depreciation  D. Tax  

*Q58.* Differential cost =  

A. Sunk cost  B. Future cost that differs between options  

C. Historical cost  D. Opportunity cost  

*Q59.* Cost of quality – Prevention:  

A. Inspection  B. Training  C. Rework  D. Warranty  

*Q60.* External failure cost:  

A. Scrap  B. Testing  C. Customer returns  D. Design review  

---

*PART 3: AIS & BUSINESS ACUMEN – 25 Qs*

*Q61.* AIS subsystem for payroll:  

A. GL  B. HRM  C. Expenditure cycle  D. Revenue cycle  

*Q62.* Segregation of duties: Authorize, Record, Custody should be:  

A. Same person  B. Separate  C. Two only  D. Not important  

*Q63.* Preventive control:  

A. Bank rec  B. Passwords  C. Variance analysis  D. Audit  

*Q64.* Detective control:  

A. Locks  B. Reconciliation  C. Training  D. Approval  

*Q65.* ERP benefit:  

A. Data silos  B. Real-time integration  C. More manual work  D. Less security  

*Q66.* Database: Primary key is:  

A. Duplicate allowed  B. Unique identifier  C. Foreign key  D. Null allowed  

*Q67.* XBRL used for:  

A. Encryption  B. Financial reporting tagging  C. Payroll  D. Firewall  

*Q68.* Data analytics: “Why did sales drop?” is:  

A. Descriptive  B. Diagnostic  C. Predictive  D. Prescriptive  

*Q69.* Blockchain key feature:  

A. Centralized  B. Immutable ledger  C. Easy to change  D. No security  

*Q70.* SOX 404 requires mgmt to:  

A. Outsource audit  B. Assess ICFR  C. Avoid controls  D. Use cash basis  

*Q71.* COSO cube does NOT include:  

A. Objectives  B. Components  C. Org structure  D. Tax rates  

*Q72.* Risk appetite is:  

A. Amount of risk to avoid all risk  

B. Broad amount of risk entity accepts  

C. Same as tolerance  D. Not defined  

*Q73.* Business acumen includes understanding:  

A. Only accounting  B. How business creates value  C. Tax law only  D. Audit only  

*Q74.* Porter’s Five Forces: Supplier power high when:  

A. Many suppliers  B. Few substitutes  C. Product not unique  D. Low switching cost  

*Q75.* SWOT: “Strong brand” is:  

A. Strength  B. Weakness  C. Opportunity  D. Threat  

*Q76.* Value chain primary activity:  

A. HR  B. Procurement  C. Operations  D. Technology  

*Q77.* Balanced Scorecard: “Employee training hours” =  

A. Financial  B. Customer  C. Internal  D. Learning & Growth  

*Q78.* KPI should be:  

A. SMART  B. Vague  C. Too many  D. Not measurable  

*Q79.* CSR stands for:  

A. Corporate Sales Return  B. Corporate Social Responsibility  

C. Cost Saving Ratio  D. Current Service Revenue  

*Q80.* ESG: “E” includes:  

A. Board diversity  B. Carbon emissions  C. Executive pay  D. Audit fees  

*Q81.* Stakeholder vs Shareholder: Stakeholder is:  

A. Narrower  B. Broader, includes non-owners  C. Same  D. Only employees  

*Q82.* Triple bottom line:  

A. Profit only  B. People, Planet, Profit  C. Assets, Liab, Equity  D. Sales, GP, NP  

*Q83.* Supply chain: Upstream =  

A. Customers  B. Suppliers  C. Retailers  D. Distributors  

*Q84.* JIT inventory goal:  

A. High stock  B. Zero inventory  C. EOQ  D. Safety stock  

*Q85.* EOQ minimizes:  

A. Only ordering cost  B. Only carrying cost  C. Sum of ordering + carrying  D. Stockout  

---

*PART 4: MIXED CONCEPTS CMA/ACCA – 15 Qs*

*Q86.* ACCA FMA: Prime cost + MOH = ?  

A. Total cost  B. Conversion cost  C. Period cost  D. Marginal cost  

*Q87.* CMA: ROI can be improved by:  

A. ↓Sales  B. ↓Investment  C. ↑Expenses  D. ↓Margin  

*Q88.* RI advantage over ROI:  

A. % only  B. Avoids rejecting projects > WACC  C. Same  D. No advantage  

*Q89.* Master budget prepared first:  

A. Cash  B. Sales  C. Production  D. Capex  

*Q90.* Flexible budget variance = Actual – Flexible. This is:  

A. Volume variance  B. Efficiency/price variance  C. Sales variance  D. Static variance  

*Q91.* Capital vs Revenue expenditure: New roof extending life = ?  

A. Revenue  B. Capital  C. Expense  D. Liability  

*Q92.* Accrual basis records:  

A. Cash only  B. When earned/incurred  C. When paid  D. Hybrid  

*Q93.* Conservatism principle:  

A. Overstate assets  B. Anticipate losses, not gains  

C. Always use high estimates  D. Ignore losses  

*Q94.* Materiality depends on:  

A. Size & nature  B. Always 5%  C. Auditor only  D. Fixed $  

*Q95.* Cost object is:  

A. Anything cost is measured for  B. Cost driver  C. Cost pool  D. Allocation base  

*Q96.* Stewardship means mgmt is responsible for:  

A. Profit only  B. Resources entrusted by owners  

C. Tax  D. Sales  

*Q97.* Which report shows financial position at a point?  

A. I/S  B. B/S  C. CFS  D. SOCIE  

*Q98.* Which report shows performance over period?  

A. B/S  B. I/S  C. Statement of FP  D. Notes  

*Q99.* Management accounting focus:  

A. Past, external  B. Future, internal  C. Tax  D. Audit  

*Q100.* Code of Ethics: Objectivity means:  

A. Bias ok  B. No conflict of interest influence  C. Always agree with boss  D. Ignore facts  

---

*ANSWER KEY*

*Part 1*: 1-B, 2-C, 3-D, 4-B, 5-B, 6-B, 7-B, 8-C, 9-B, 10-D, 11-B, 12-B, 13-B, 14-C, 15-B, 16-B, 17-B, 18-B, 19-B, 20-C, 21-A, 22-C, 23-D, 24-A, 25-C  

*Part 2*: 26-A, 27-B, 28-C, 29-B, 30-C, 31-B, 32-B, 33-C, 34-B, 35-B, 36-B, 37-B, 38-B, 39-B, 40-B, 41-B, 42-A, 43-B, 44-B, 45-B, 46-B, 47-A, 48-B, 49-B, 50-B, 51-A, 52-C, 53-B, 54-B, 55-C, 56-B, 57-B, 58-B, 59-B, 60-C  

*Part 3*: 61-C, 62-B, 63-B, 64-B, 65-B, 66-B, 67-B, 68-B, 69-B, 70-B, 71-D, 72-B, 73-B, 74-B, 75-A, 76-C, 77-D, 78-A, 79-B, 80-B, 81-B, 82-B, 83-B, 84-B, 85-C  

*Part 4*: 86-A, 87-B, 88-B, 89-B, 90-B, 91-B, 92-B, 93-B, 94-A, 95-A, 96-B, 97-B, 98-B, 99-B, 100-B  

*Key Rationale Snippets*:  

*Q3*: Bonds Payable = Liability, not Equity.  

*Q6*: Small stock dividend: 1,000×10%×$20 = $2,000, but RE debited at MV = $20k.  

*Q23*: Immaterial correction goes to current tax expense.  

*Q35*: Production > Sales → Absorption defers FC in inventory → Absorption NOI > Variable.  

*Q38*: Applied 9.5k×20=190k vs Actual 198k = 8k Under.  

*Q87*: ROI = Margin × Turnover. ↓Investment ↑Turnover ↑ROI.

---

*How to Use This Mock*:  

1. *Score*: 80+ = strong, 65-79 = review weak sections, <65 = redo concepts.  

2. *CMA Weight*: Part 1 exam is 100 MCQs + 2 essays. This mirrors Section A-F coverage.  

3. *ACCA FMA*: Q1-Q60 map directly to MA/F2 syllabus.

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*100 MCQs – US CMA Part 1 + ACCA FMA/F2 Foundation

 

100 MCQs – US CMA Part 1 + ACCA FMA/F2 Foundation

100 MCQs – US CMA Part 1 + ACCA FMA/F2 Foundation

*Coverage*: Financial Reporting, Cost Accounting Basics, AIS, Business Acumen, Stakeholders, Cost Types  

*Format*: 100 Qs + Answer Key with 1-line r

*PART 1: FINANCIAL REPORTING BASICS – 25 Qs*

*Q1.* Which accounting principle requires expenses matched with revenues?  

A. Consistency  B. Matching  C. Materiality  D. Conservatism  

*Q2.* Under US GAAP, inventory is valued at:  

A. Cost only  B. NRV only  C. Lower of cost or NRV  D. Lower of cost or market  

*Q3.* Which is NOT a component of Equity?  

A. Retained Earnings  B. Common Stock  C. Treasury Stock  D. Bonds Payable  

*Q4.* Depreciation is an example of:  

A. Cash outflow  B. Non-cash expense  C. Revenue  D. Liability  

*Q5.* Issued Capital – Subscribed Capital = ?  

A. Authorized capital  B. Unissued capital  C. Calls in arrears  D. Paid-up capital  

*Q6.* 10% Stock dividend when MV $20, Par $10. For 1,000 shares issued, RE debit = ?  

A. $10,000  B. $20,000  C. $2,000  D. $1,000  

*Q7.* Trading securities unrealized gain/loss goes to:  

A. OCI  B. I/S  C. RE directly  D. B/S only  

*Q8.* ASC 606 Step 3 is:  

A. Identify contract  B. Identify PO  C. Determine transaction price  D. Allocate price  

*Q9.* Finance lease criteria: Lease term = 80% of economic life. Classification?  

A. Operating  B. Finance  C. Sales-type  D. Short-term  

*Q10.* Bad debt written off, later recovered. Entry:  

A. Dr Cash, Cr Bad Debt Expense  

B. Dr Cash, Cr Bad Debt Recovery  

C. Dr A/R, Cr Allowance, then Dr Cash, Cr A/R  

D. Both B and C acceptable  

*Q11.* Purchase commitment loss recognized when:  

A. Contract signed  

B. MV < Contract price + loss probable  

C. Goods received  

D. Never  

*Q12.* Entity Theory states:  

A. Business = owner  B. Assets = Equities  C. Profit belongs to owner only  D. No separate entity  

*Q13.* Financial Capital Maintenance = profit if:  

A. Physical units maintained  B. Ending net assets > Beg net assets in $  

C. Cash increased  D. Sales increased  

*Q14.* Which is current liability?  

A. Bonds due 2029  B. Deferred tax liability  C. Wages payable  D. Lease liability >12mo  

*Q15.* Warranty expense is recorded in period of:  

A. Payment  B. Sale  C. Claim  D. End of warranty  

*Q16.* CFO Indirect method starts with:  

A. Sales  B. Net Income  C. EBIT  D. Gross Profit  

*Q17.* Increase in A/R effect on CFO:  

A. Add  B. Subtract  C. No effect  D. Only if cash basis  

*Q18.* Intercompany profit in ending inventory must be:  

A. Ignored  B. Eliminated  C. Taxed  D. Added to NCI  

*Q19.* Annual Report primary users under IFRS Framework:  

A. Tax authorities  B. Existing & potential investors, lenders  

C. Employees  D. Government  

*Q20.* Which is NOT qualitative characteristic?  

A. Relevance  B. Faithful representation  C. Conservatism  D. Comparability  

*Q21.* Sum-of-years digits, life 4 yrs, Year 1 fraction = ?  

A. 4/10  B. 1/4  C. 4/12  D. 1/10  

*Q22.* DDB ignores salvage value until:  

A. Never  B. First year  C. Last year  D. Always  

*Q23.* Excess tax provision last year adjusted by:  

A. Dr Tax Expense, Cr Tax Payable  

B. Dr Tax Payable, Cr RE prior period adj  

C. Ignore  D. Dr Tax Payable, Cr Tax Expense  

*Q24.* HTM bond amortized cost increases when:  

A. Discount bond  B. Premium bond  C. Market falls  D. Sold  

*Q25.* Stakeholder with no financial claim but interest:  

A. Shareholder  B. Creditor  C. Community  D. Bank  

---

*PART 2: COST ACCOUNTING BASICS & COST TYPES – 35 Qs*

*Q26.* Prime Cost =  

A. DM + DL  B. DL + MOH  C. DM + MOH  D. All costs  

*Q27.* Conversion Cost =  

A. DM + DL  B. DL + MOH  C. DM + MOH  D. Period cost  

*Q28.* Rent of factory building is:  

A. Direct cost  B. Period cost  C. Product fixed OH  D. Variable cost  

*Q29.* Salary of CEO is:  

A. Product cost  B. Period cost  C. Direct labor  D. MOH  

*Q30.* Cost that changes with activity but not proportionately:  

A. Fixed  B. Variable  C. Mixed  D. Step  

*Q31.* Committed fixed cost example:  

A. Advertising  B. Depreciation  C. Training  D. Sales commission  

*Q32.* Opportunity cost is:  

A. Recorded in books  B. Relevant for decision  C. Sunk cost  D. Always cash  

*Q33.* Sunk cost is:  

A. Future cost  B. Relevant  C. Irrelevant  D. Avoidable  

*Q34.* Absorption costing treats fixed OH as:  

A. Period cost  B. Product cost  C. Expense  D. Asset only  

*Q35.* When production > sales, which NOI higher?  

A. Variable  B. Absorption  C. Same  D. Depends  

*Q36.* High-low method weakness:  

A. Too accurate  B. Uses only 2 points  C. Complex  D. Needs regression  

*Q37.* Normal capacity based on:  

A. Max output  B. Long-term average demand  C. Current year  D. Zero downtime  

*Q38.* Under-applied OH means:  

A. Actual < Applied  B. Actual > Applied  C. No variance  D. Favorable  

*Q39.* Job costing used for:  

A. Oil refining  B. Custom furniture  C. Flour  D. Chemicals  

*Q40.* Process costing WIP equivalent units needed because:  

A. No WIP  B. Partially complete units  C. Only FG  D. Job order  

*Q41.* Abnormal spoilage is:  

A. Product cost  B. Period loss  C. Added to good units  D. Ignored  

*Q42.* Joint cost split-off point means:  

A. Products identifiable  B. Costs end  C. Sales begin  D. Separable costs start  

*Q43.* By-product accounting method:  

A. Allocate joint cost  B. NRV reduces main product cost  C. No entry  D. Always material  

*Q44.* Activity-based costing allocates OH using:  

A. One rate  B. Multiple cost drivers  C. DL hours only  D. Machine hours only  

*Q45.* Cost pool is:  

A. Single product  B. Group of costs with same driver  C. Direct cost  D. Period cost  

*Q46.* Unit-level activity:  

A. Setup  B. Drilling hole  C. Product design  D. Factory rent  

*Q47.* Throughput =  

A. SP – DM  B. SP – VC  C. SP – Total cost  D. GP  

*Q48.* Target costing: Price $100, Profit $20, Target cost = ?  

A. $120  B. $80  C. $100  D. $20  

*Q49.* Life-cycle cost includes:  

A. Production only  B. R&D to disposal  C. Selling only  D. Warranty only  

*Q50.* Kaizen costing aims for:  

A. One big cut  B. Continuous small cuts  C. Zero base  D. Standard cost  

*Q51.* Direct material is:  

A. Always variable  B. Can be fixed  C. Period cost  D. MOH  

*Q52.* Indirect labor is part of:  

A. DM  B. DL  C. MOH  D. SG&A  

*Q53.* Variable cost per unit:  

A. Changes with volume  B. Constant per unit  C. Zero  D. Changes total only  

*Q54.* Fixed cost per unit:  

A. Constant  B. Decreases as volume ↑  C. Increases as volume ↑  D. Zero  

*Q55.* Mixed cost example:  

A. Rent  B. DM  C. Utility with base + usage  D. Depreciation  

*Q56.* Relevant range is:  

A. 0 to infinity  B. Activity where cost behavior valid  C. Always 1 year  D. Budget range  

*Q57.* Controllable cost for dept manager:  

A. Allocated HQ rent  B. Dept supplies  C. Depreciation  D. Tax  

*Q58.* Differential cost =  

A. Sunk cost  B. Future cost that differs between options  

C. Historical cost  D. Opportunity cost  

*Q59.* Cost of quality – Prevention:  

A. Inspection  B. Training  C. Rework  D. Warranty  

*Q60.* External failure cost:  

A. Scrap  B. Testing  C. Customer returns  D. Design review  

---

*PART 3: AIS & BUSINESS ACUMEN – 25 Qs*

*Q61.* AIS subsystem for payroll:  

A. GL  B. HRM  C. Expenditure cycle  D. Revenue cycle  

*Q62.* Segregation of duties: Authorize, Record, Custody should be:  

A. Same person  B. Separate  C. Two only  D. Not important  

*Q63.* Preventive control:  

A. Bank rec  B. Passwords  C. Variance analysis  D. Audit  

*Q64.* Detective control:  

A. Locks  B. Reconciliation  C. Training  D. Approval  

*Q65.* ERP benefit:  

A. Data silos  B. Real-time integration  C. More manual work  D. Less security  

*Q66.* Database: Primary key is:  

A. Duplicate allowed  B. Unique identifier  C. Foreign key  D. Null allowed  

*Q67.* XBRL used for:  

A. Encryption  B. Financial reporting tagging  C. Payroll  D. Firewall  

*Q68.* Data analytics: “Why did sales drop?” is:  

A. Descriptive  B. Diagnostic  C. Predictive  D. Prescriptive  

*Q69.* Blockchain key feature:  

A. Centralized  B. Immutable ledger  C. Easy to change  D. No security  

*Q70.* SOX 404 requires mgmt to:  

A. Outsource audit  B. Assess ICFR  C. Avoid controls  D. Use cash basis  

*Q71.* COSO cube does NOT include:  

A. Objectives  B. Components  C. Org structure  D. Tax rates  

*Q72.* Risk appetite is:  

A. Amount of risk to avoid all risk  

B. Broad amount of risk entity accepts  

C. Same as tolerance  D. Not defined  

*Q73.* Business acumen includes understanding:  

A. Only accounting  B. How business creates value  C. Tax law only  D. Audit only  

*Q74.* Porter’s Five Forces: Supplier power high when:  

A. Many suppliers  B. Few substitutes  C. Product not unique  D. Low switching cost  

*Q75.* SWOT: “Strong brand” is:  

A. Strength  B. Weakness  C. Opportunity  D. Threat  

*Q76.* Value chain primary activity:  

A. HR  B. Procurement  C. Operations  D. Technology  

*Q77.* Balanced Scorecard: “Employee training hours” =  

A. Financial  B. Customer  C. Internal  D. Learning & Growth  

*Q78.* KPI should be:  

A. SMART  B. Vague  C. Too many  D. Not measurable  

*Q79.* CSR stands for:  

A. Corporate Sales Return  B. Corporate Social Responsibility  

C. Cost Saving Ratio  D. Current Service Revenue  

*Q80.* ESG: “E” includes:  

A. Board diversity  B. Carbon emissions  C. Executive pay  D. Audit fees  

*Q81.* Stakeholder vs Shareholder: Stakeholder is:  

A. Narrower  B. Broader, includes non-owners  C. Same  D. Only employees  

*Q82.* Triple bottom line:  

A. Profit only  B. People, Planet, Profit  C. Assets, Liab, Equity  D. Sales, GP, NP  

*Q83.* Supply chain: Upstream =  

A. Customers  B. Suppliers  C. Retailers  D. Distributors  

*Q84.* JIT inventory goal:  

A. High stock  B. Zero inventory  C. EOQ  D. Safety stock  

*Q85.* EOQ minimizes:  

A. Only ordering cost  B. Only carrying cost  C. Sum of ordering + carrying  D. Stockout  

---

*PART 4: MIXED CONCEPTS CMA/ACCA – 15 Qs*

*Q86.* ACCA FMA: Prime cost + MOH = ?  

A. Total cost  B. Conversion cost  C. Period cost  D. Marginal cost  

*Q87.* CMA: ROI can be improved by:  

A. ↓Sales  B. ↓Investment  C. ↑Expenses  D. ↓Margin  

*Q88.* RI advantage over ROI:  

A. % only  B. Avoids rejecting projects > WACC  C. Same  D. No advantage  

*Q89.* Master budget prepared first:  

A. Cash  B. Sales  C. Production  D. Capex  

*Q90.* Flexible budget variance = Actual – Flexible. This is:  

A. Volume variance  B. Efficiency/price variance  C. Sales variance  D. Static variance  

*Q91.* Capital vs Revenue expenditure: New roof extending life = ?  

A. Revenue  B. Capital  C. Expense  D. Liability  

*Q92.* Accrual basis records:  

A. Cash only  B. When earned/incurred  C. When paid  D. Hybrid  

*Q93.* Conservatism principle:  

A. Overstate assets  B. Anticipate losses, not gains  

C. Always use high estimates  D. Ignore losses  

*Q94.* Materiality depends on:  

A. Size & nature  B. Always 5%  C. Auditor only  D. Fixed $  

*Q95.* Cost object is:  

A. Anything cost is measured for  B. Cost driver  C. Cost pool  D. Allocation base  

*Q96.* Stewardship means mgmt is responsible for:  

A. Profit only  B. Resources entrusted by owners  

C. Tax  D. Sales  

*Q97.* Which report shows financial position at a point?  

A. I/S  B. B/S  C. CFS  D. SOCIE  

*Q98.* Which report shows performance over period?  

A. B/S  B. I/S  C. Statement of FP  D. Notes  

*Q99.* Management accounting focus:  

A. Past, external  B. Future, internal  C. Tax  D. Audit  

*Q100.* Code of Ethics: Objectivity means:  

A. Bias ok  B. No conflict of interest influence  C. Always agree with boss  D. Ignore facts  

*Key Rationale Snippets*:  

*Q3*: Bonds Payable = Liability, not Equity.  

*Q6*: Small stock dividend: 1,000×10%×$20 = $2,000, but RE debited at MV = $20k.  

*Q23*: Immaterial correction goes to current tax expense.  

*Q35*: Production > Sales → Absorption defers FC in inventory → Absorption NOI > Variable.  

*Q38*: Applied 9.5k×20=190k vs Actual 198k = 8k Under.  

*Q87*: ROI = Margin × Turnover. ↓Investment ↑Turnover ↑ROI.

*How to Use This Mock*:  

1. *Score*: 80+ = strong, 65-79 = review weak sections, <65 = redo concepts.  

2. *CMA Weight*: Part 1 exam is 100 MCQs + 2 essays. This mirrors Section A-F coverage.  

3. *ACCA FMA*: Q1-Q60 map directly to MA/F2 syllabus.

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Mocktest on Cost concept

case-based MCQs with answers covering *Basic Cost Accounting – ACCA FMA + US CMA Part 1* topic... Cost concept

All cases are exam-style: 1 scenario → multiple concepts tested.

*CASE 1: “Delta Factory” – Absorption vs Variable + OH + Journal Entries*

*Background:*  

Delta produces chairs. 2026 data:  

Beg WIP = 0. Beg FG = 2,000 units @ $50/unit absorption cost.  

Produced = 20,000 units. Sold = 18,000 units @ $80. End FG = 4,000 units.  

Costs: DM $12/u, DL $8/u, VOH $5/u, Fixed Mfg OH budgeted $200,000. Actual Fixed Mfg OH = $210,000.  

Fixed Non-Mfg = $150,000. Variable selling = $2/u sold.  

OH applied on DL hours. Std DL = 1 hr/u. Actual DL hrs = 19,500 hrs.  

Predetermined OH rate = $200,000 / 20,000 hrs = $10/hr.

---

*Q1. ABSORPTION COSTING – Std D.1*  

_Unit product cost under absorption costing?_  

A. $25  B. $35  C. $33  D. $37  

*Answer: B*  

*Rationale:* DM 12 + DL 8 + VOH 5 + Fixed OH 200K/20K = 10 = *$35*. Variable cost = $25.

*Q2. OVER/UNDER APPLIED OH – Std D.2*  

_Over or under-applied Mfg OH?_  

A. $10,000 Over  B. $10,000 Under  C. $15,000 Over  D. $15,000 Under  

*Answer: D*  

*Rationale:* Applied = 19,500 hrs × $10 = $195,000. Actual = $210,000. Actual > Applied = *$15,000 Under-applied*.

*Q3. JOURNAL ENTRY – MATERIAL TO PRODUCTION*  

_DM issued to production $240,000. Correct entry?_  

A. Dr WIP 240K, Cr DM Inventory 240K  

B. Dr DM Inventory 240K, Cr WIP 240K  

C. Dr COGS 240K, Cr DM 240K  

D. Dr MOH 240K, Cr DM 240K  

*Answer: A*  

*Rationale:* Material transferred = WIP increases, DM inventory decreases.

*Q4. DISPOSITION OF SIGNIFICANT UNDER-APPLIED OH*  

_Under-applied $15,000 is significant. Correct disposition?_  

A. Close to COGS only  

B. Prorate to WIP, FG, COGS  

C. Close to P&L as period cost  

D. Add to Fixed OH next year  

*Answer: B*  

*Rationale:* GAAP/CMA: If _significant_, prorate to WIP, FG, COGS based on OH in ending balances. If immaterial → COGS only.

*Q5. VARIABLE COSTING NOI*  

_If absorption NOI = $350,000, what is variable costing NOI?_  

A. $370,000  B. $330,000  C. $350,000  D. $390,000  

*Answer: B*  

*Rationale:* Inventory ↑ by 2,000 units = 4,000 – 2,000. Absorption defers 2,000 × $10 fixed OH = $20,000. So Variable NOI = 350K – 20K = *$330,000*.

---

*CASE 2: “Omega Parts” – Cost Concepts + Decision Making*

*Background:*  

Omega makes Part X. Current supplier cost = $40/u. Make in-house: DM $15, DL $10, VOH $5, Allocated fixed OH $12. Idle capacity exists. Old machine NBV = $50,000, scrap = $5,000. If make, need new jig $30,000 usable 3 yrs. Manager salary $60,000 unavoidable.

---

*Q6. RELEVANT COST – MAKE OR BUY*  

_Relevant unit cost to make?_  

A. $42  B. $30  C. $40  D. $102  

*Answer: B*  

*Rationale:* Relevant = DM 15 + DL 10 + VOH 5 = *$30*. Fixed OH $12 is allocated, not incremental. Manager salary sunk. Jig = $30K/assume units, but CMA usually asks unit incremental → jig is relevant but not per unit unless volume given. Old machine NBV sunk, scrap $5K is opportunity cost of _keep_, not make. Buy = $40. Make $30 < Buy $40.

*Q7. SUNK COST*  

_Which is sunk?_  

A. New jig $30,000  B. Old machine NBV $50,000  C. Manager salary $60,000  D. Both B & C  

*Answer: D*  

*Rationale:* Sunk = past cost, unavoidable. NBV of old machine + unavoidable salary are sunk. Jig is future, relevant.

*Q8. OPPORTUNITY COST*  

_If Omega can rent idle space for $8,000 if they buy, what is opportunity cost of making?_  

A. $0  B. $8,000  C. $5,000  D. $50,000  

*Answer: B*  

*Rationale:* By making, you forgo $8,000 rent. That’s opportunity cost of make decision.

*Q9. ENGINEERED vs DISCRETIONARY COST*  

_DL $10/u is what type? Fixed OH allocated $12 is?_  

A. Engineered, Engineered  B. Engineered, Discretionary  C. Discretionary, Engineered  D. Discretionary, Discretionary  

*Answer: B*  

*Rationale:* Engineered = clear input-output relation → DL, DM. Discretionary = management judgment, no optimal amount → Advertising, R&D, allocated fixed OH.

*Q10. PRIME COST vs CONVERSION COST*  

_Prime cost per unit = ? Conversion cost = ?_  

A. $25, $15  B. $25, $27  C. $15, $27  D. $27, $25  

*Answer: B*  

*Rationale:* Prime = DM 15 + DL 10 = *$25*. Conversion = DL 10 + VOH 5 + FOH 12 = *$27* under absorption.

---

*CASE 3: “Beta Textiles” – Inventory + Purchases + Ratios*

*Background:*  

Sales = $1,000,000. Gross Profit = 40%. Beg Inventory = $80,000. Purchases = $620,000.  

Purchase docs used: Purchase Requisition, PO, Goods Received Note, Supplier Invoice.  

Slow moving inventory = $30,000. Skilled labor rate $25/hr, Unskilled $15/hr.

---

*Q11. COGS & END INVENTORY*  

_COGS = ? End Inventory = ?_  

A. $600K, $100K  B. $400K, $300K  C. $600K, $300K  D. $400K, $100K  

*Answer: A*  

*Rationale:* GP 40% → COGS = 60% × 1M = *$600,000*. End Inv = Beg 80K + Purch 620K – COGS 600K = *$100,000*.

*Q12. INVENTORY TURNOVER*  

_Inventory Turnover = ?_  

A. 6.0  B. 6.67  C. 10.0  D. 12.5  

*Answer: B*  

*Rationale:* Avg Inv = (80K+100K)/2 = $90K. Turnover = COGS/Avg Inv = 600K/90K = *6.67 times*.

*Q13. SLOW MOVING INVENTORY RISK*  

_$30K slow moving = 30% of end inv. Impact?_  

A. Overstates profit  B. Risk of obsolescence, need write-down  C. Improves turnover  D. No impact  

*Answer: B*  

*Rationale:* Slow moving → NRV < Cost → IAS 2 requires write-down. Affects efficiency + economy.

*Q14. PURCHASE DOCUMENTS – Std E.1*  

_Which document authorizes supplier to ship?_  

A. Purchase Requisition  B. Purchase Order  C. GRN  D. Invoice  

*Answer: B*  

*Rationale:* PO = legal offer to supplier. PR = internal request. GRN = receipt proof. Invoice = billing.

*Q15. SKILLED vs UNSKILLED LABOUR*  

_Using unskilled for skilled job causes?_  

A. Lower rate variance favorable  B. Higher efficiency variance unfavorable  C. Lower quality, rework  D. B & C  

*Answer: D*  

*Rationale:* Rate F but efficiency U, quality ↓. Economy vs Effectiveness trade-off.

---

*CASE 4: “Gamma Ltd” – High-Low + Relevant Range + Throughput*

*Background:*  

Month 1: 5,000 units, Total cost $70,000. Month 6: 8,000 units, $94,000.  

Relevant range = 4,000–9,000 units. Capacity constraint = Machine X, 2 min/unit. Selling price $25, DM $8/u.  

Joint process: Product A & B from crude oil. B is by-product sold for $2/u.

---

*Q16. HIGH-LOW METHOD*  

_Variable cost per unit = ? Fixed cost = ?_  

A. $8, $30K  B. $8, $24K  C. $12, $10K  D. $10, $20K  

*Answer: A*  

*Rationale:* VC/u = (94K–70K)/(8K–5K) = 24K/3K = *$8*. Fixed = 70K – 5K×8 = *$30,000*.

*Q17. RELEVANT RANGE*  

_If Gamma plans 10,000 units next month, high-low estimate reliable?_  

A. Yes  B. No, outside relevant range  C. Yes if linear  D. Only for fixed  

*Answer: B*  

*Rationale:* 10,000 > 9,000 max relevant range. Cost behavior may change → step-fixed costs.

*Q18. THROUGHPUT*  

_Throughput per minute of constraint = ?_  

A. $8.50  B. $12.50  C. $17.00  D. $25.00  

*Answer: A*  

*Rationale:* Throughput = SP – DM = 25 – 8 = $17/u. 2 min/u → $17/2 = *$8.50/min*.

*Q19. JOINT PRODUCT vs BY-PRODUCT*  

_Accounting for by-product B: sales $2/u. Best treatment?_  

A. Joint cost allocation  B. Credit production cost of A  C. Treat as other income  D. B or C acceptable  

*Answer: D*  

*Rationale:* By-product immaterial → either reduce joint cost = credit to production cost, or show as other income. CMA accepts both.

*Q20. COST FLOW – JOURNAL FOR PRODUCTION COMPLETED*  

_WIP to FG $500,000. Entry?_  

A. Dr FG 500K, Cr WIP 500K  

B. Dr WIP 500K, Cr FG 500K  

C. Dr COGS 500K, Cr WIP 500K  

D. Dr MOH 500K, Cr WIP 500K  

*Answer: A*  

*Rationale:* Goods completed → FG ↑, WIP ↓.

---

*CASE 5: “Retail Co” – Margin, Markup, Trading Partners*

*Background:*  

Cost = $60, Selling Price = $100. Credit customer owes $20,000. Vendor owes rebate $5,000.

---

*Q21. PROFIT MARGIN vs MARKUP*  

_Profit margin % = ? Markup % = ?_  

A. 40%, 66.67%  B. 60%, 40%  C. 40%, 40%  D. 66.67%, 40%  

*Answer: A*  

*Rationale:* Margin = (100–60)/100 = *40% on sales*. Markup = (100–60)/60 = *66.67% on cost*.

*Q22. TRADING PARTNER vs VENDOR vs CUSTOMER*  

_The entity owing $20,000 is? Entity giving rebate $5,000 is?_  

A. Vendor, Customer  B. Customer, Vendor  C. Trading Partner, Trading Partner  D. Both B & C  

*Answer: D*  

*Rationale:* Customer owes you = A/R. Vendor owes rebate = A/P debit. Both are “trading partners” umbrella term.

---

*KEY DEFINITIONS – QUICK RECAP*

**Term** **Definition** **CMA Test Point**

**Inventoriable Cost** Product costs: DM, DL, Mfg OH. Go to inventory until sold Absorption vs Variable

**Production OH** Indirect mfg costs: rent, depreciation of factory Allocated, over/under applied

**Non-Production OH** Selling, Admin costs Period cost always

**Economy** Acquiring inputs at lowest cost Price variance

**Efficiency** Max output from inputs Quantity/Efficiency variance

**Effectiveness** Achieving objectives Sales volume variance, quality

**Relevant Range** Activity level where fixed/variable behavior holds High-low invalid outside

**Short Run** At least one factor of production fixed Fixed costs exist

**Factors of Production** Land, Labor, Capital, Enterprise Variable vs Fixed in SR

*Advice for ACCA FMA + CMA Part 1:*  

1. *Journal entries*: WIP → FG → COGS flow is 20% of Part 1 cost questions

2. *Over/Under OH*: Always test “significant vs immaterial” rule

3. *Relevant costing*: Ignore sunk, allocated fixed, depreciation. Only incremental + opportunity

4. *Ratios*: Inventory turnover = COGS/Avg Inv. Slow moving → check NRV

5. *Definitions*: CMA loves Engineered vs Discretionary, Prime vs Conversion

Basic Cost concept. Mocktest

Case-based MCQs covering :Basic Cost Accounting.By Gmsisuccess

Case-based MCQs  covering :Basic Cost Accounting – ACCA FMA + US CMA Part 1 topic... Cost concept 

All cases are exam-style: 1 scenario → multiple concepts tested.

*CASE 1: “Delta Factory” – Absorption vs Variable + OH + Journal Entries*

*Background:*  

Delta produces chairs. 2026 data:  

Beg WIP = 0. Beg FG = 2,000 units @ $50/unit absorption cost.  

Produced = 20,000 units. Sold = 18,000 units @ $80. End FG = 4,000 units.  

Costs: DM $12/u, DL $8/u, VOH $5/u, Fixed Mfg OH budgeted $200,000. Actual Fixed Mfg OH = $210,000.  

Fixed Non-Mfg = $150,000. Variable selling = $2/u sold.  

OH applied on DL hours. Std DL = 1 hr/u. Actual DL hrs = 19,500 hrs.  

Predetermined OH rate = $200,000 / 20,000 hrs = $10/hr.

*Q1. ABSORPTION COSTING – Std D.1*  

_Unit product cost under absorption costing?_  

*Answer: 

*Q2. OVER/UNDER APPLIED OH – Std D.2*  

_Over or under-applied Mfg OH?_  

*Answer: 

*Q3. JOURNAL ENTRY – MATERIAL TO PRODUCTION*  

_DM issued to production $240,000. Correct entry?_  

A. Dr WIP 240K, Cr DM Inventory 240K  

B. Dr DM Inventory 240K, Cr WIP 240K  

C. Dr COGS 240K, Cr DM 240K  

D. Dr MOH 240K, Cr DM 240K  

*Answer:

*Q4. DISPOSITION OF SIGNIFICANT UNDER-APPLIED OH*  

_Under-applied $15,000 is significant. Correct disposition?_  

A. Close to COGS only  

B. Prorate to WIP, FG, COGS  

C. Close to P&L as period cost  

D. Add to Fixed OH next year  

*Answer:

*Q5. VARIABLE COSTING NOI*  

_If absorption NOI = $350,000, what is variable costing NOI?_ 

A. $370,000  B. $330,000  C. $350,000  D. $390,000  

*Answer: 

*CASE 2: “Omega Parts” – Cost Concepts + Decision Making*

*Background:*  

Omega makes Part X. Current supplier cost = $40/u. Make in-house: DM $15, DL $10, VOH $5, Allocated fixed OH $12. Idle capacity exists. Old machine NBV = $50,000, scrap = $5,000. If make, need new jig $30,000 usable 3 yrs. Manager salary $60,000 unavoidable.

*Q6. RELEVANT COST – MAKE OR BUY*  refer with answer..

_Relevant unit cost to make?_  

A. $42  B. $30  C. $40  D. $102  

*Answer: B*  

*Rationale:* Relevant = DM 15 + DL 10 + VOH 5 = *$30*. Fixed OH $12 is allocated, not incremental. Manager salary sunk. Jig = $30K/assume units, but CMA usually asks unit incremental → jig is relevant but not per unit unless volume given. Old machine NBV sunk, scrap $5K is opportunity cost of _keep_, not make. Buy = $40. Make $30 < Buy $40.

*Q7. SUNK COST*  

_Which is sunk?_  

A. New jig $30,000  B. Old machine NBV $50,000  C. Manager salary $60,000  D. Both B & C  

*Answer:  

*Q8. OPPORTUNITY COST*  

_If Omega can rent idle space for $8,000 if they buy, what is opportunity cost of making?_  

A. $0  B. $8,000  C. $5,000  D. $50,000  

*Answer:

*Q9. ENGINEERED vs DISCRETIONARY COST*  

_DL $10/u is what type? Fixed OH allocated $12 is?_  

A. Engineered, Engineered  B. Engineered, Discretionary  C. Discretionary, Engineered  D. Discretionary, Discretionary  

*Answer:  

*Q10. PRIME COST vs CONVERSION COST*  

_Prime cost per unit = ? Conversion cost = ?_  

A. $25, $15  B. $25, $27  C. $15, $27  D. $27, $25  

*Answer:

*CASE 3: “Beta Textiles” – Inventory + Purchases + Ratios*

*Background:*  

Sales = $1,000,000. Gross Profit = 40%. Beg Inventory = $80,000. Purchases = $620,000.  

Purchase docs used: Purchase Requisition, PO, Goods Received Note, Supplier Invoice.  

Slow moving inventory = $30,000. Skilled labor rate $25/hr, Unskilled $15/hr.

*Q11. COGS & END INVENTORY*  

_COGS = ? End Inventory = ?_  

A. $600K, $100K  B. $400K, $300K  C. $600K, $300K  D. $400K, $100K  

*Answer: *  

*Q12. INVENTORY TURNOVER*  

_Inventory Turnover = ?_  

A. 6.0  B. 6.67  C. 10.0  D. 12.5  

*Answer:

*Rationale:* 

*Q13. SLOW MOVING INVENTORY RISK*  

_$30K slow moving = 30% of end inv. Impact?_  

A. Overstates profit  B. Risk of obsolescence, need write-down  C. Improves turnover  D. No impact  

*Answer:

*Q14. PURCHASE DOCUMENTS – Std E.1*  

_Which document authorizes supplier to ship?_  

A. Purchase Requisition  B. Purchase Order  C. GRN  D. Invoice  

*Answer: 

*Q15. SKILLED vs UNSKILLED LABOUR*  

_Using unskilled for skilled job causes?_  

A. Lower rate variance favorable  B. Higher efficiency variance unfavorable  C. Lower quality, rework  D. B & C  

*Answer:

*CASE 4: “Gamma Ltd” – High-Low + Relevant Range + Throughput*

*Background:*  

Month 1: 5,000 units, Total cost $70,000. Month 6: 8,000 units, $94,000.  

Relevant range = 4,000–9,000 units. Capacity constraint = Machine X, 2 min/unit. Selling price $25, DM $8/u.  

Joint process: Product A & B from crude oil. B is by-product sold for $2/u.

*Q16. HIGH-LOW METHOD*  

_Variable cost per unit = ? Fixed cost = ?_  

A. $8, $30K  B. $8, $24K  C. $12, $10K  D. $10, $20K  

*Answer:

*Q17. RELEVANT RANGE*  

_If Gamma plans 10,000 units next month, high-low estimate reliable?_  

A. Yes  B. No, outside relevant range  C. Yes if linear  D. Only for fixed  

*Answer:

*Q18. THROUGHPU

_Throughput per minute of constraint = ?_  

A. $8.50  B. $12.50  C. $17.00  D. $25.00  

*Answer: 

*Q19. JOINT PRODUCT vs BY-PRODUCT*  

_Accounting for by-product B: sales $2/u. Best treatment?_  

A. Joint cost allocation  B. Credit production cost of A  C. Treat as other income  D. B or C acceptable  

*Answer 

*Q20. COST FLOW – JOURNAL FOR PRODUCTION COMPLETED*  

_WIP to FG $500,000. Entry?_  

A. Dr FG 500K, Cr WIP 500K  

B. Dr WIP 500K, Cr FG 500K  

C. Dr COGS 500K, Cr WIP 500K  

D. Dr MOH 500K, Cr WIP 500K  

*Answer: 

*CASE 5: “Retail Co” – Margin, Markup, Trading Partners*

*Background:*  

Cost = $60, Selling Price = $100. Credit customer owes $20,000. Vendor owes rebate $5,000.

*Q21. PROFIT MARGIN vs MARKUP*  

_Profit margin % = ? Markup % = ?_  

A. 40%, 66.67%  B. 60%, 40%  C. 40%, 40%  D. 66.67%, 40%  

*Answer:

*Q22. TRADING PARTNER vs VENDOR vs CUSTOMER*  

_The entity owing $20,000 is? Entity giving rebate $5,000 is?_  

A. Vendor, Customer  B. Customer, Vendor  C. Trading Partner, Trading Partner  D. Both B & C  

*Answer:  

*KEY DEFINITIONS – QUICK RECAP*

**Term** **Definition** **CMA Test Point**

**Inventoriable Cost** Product costs: DM, DL, Mfg OH. Go to inventory until sold Absorption vs Variable

**Production OH** Indirect mfg costs: rent, depreciation of factory Allocated, over/under applied

**Non-Production OH** Selling, Admin costs Period cost always

**Economy** Acquiring inputs at lowest cost Price variance

**Efficiency** Max output from inputs Quantity/Efficiency variance

**Effectiveness** Achieving objectives Sales volume variance, quality

**Relevant Range** Activity level where fixed/variable behavior holds High-low invalid outside

**Short Run** At least one factor of production fixed Fixed costs exist

**Factors of Production** Land, Labor, Capital, Enterprise Variable vs Fixed in SR

*Advice for ACCA FMA + CMA Part 1:*  

1. *Journal entries*: WIP → FG → COGS flow is 20% of Part 1 cost questions

2. *Over/Under OH*: Always test “significant vs immaterial” rule

3. *Relevant costing*: Ignore sunk, allocated fixed, depreciation. Only incremental + opportunity

4. *Ratios*: Inventory turnover = COGS/Avg Inv. Slow moving → check NRV

5. *Definitions*: CMA loves Engineered vs Discretionary, Prime vs Conversion

Case-based MCQs covering :Basic Cost Accounting