BASIC COST ACCOUNTING CONCEPTS (Q1–Q25)
1. Which cost is directly traceable to a product?
A. Factory rent
B. Supervisor salary
C. Direct materials
D. Office salary
✅ Answer: C
2. Prime Cost consists of:
A. Direct Material + Manufacturing Overhead
B. Direct Labor + Overhead
C. Direct Material + Direct Labor
D. Direct Labor + Selling Cost
✅ Answer: C
3. Conversion Cost equals:
A. Direct Material + Overhead
B. Direct Labor + Manufacturing Overhead
C. Prime Cost + Selling Cost
D. Total Manufacturing Cost
✅ Answer: B
4. Which is NOT a manufacturing cost?
A. Direct materials
B. Factory insurance
C. Factory depreciation
D. Sales commission
✅ Answer: D
5. Variable costs:
A. Stay constant per month
B. Change in total with activity
C. Never change
D. Increase per unit
✅ Answer: B
6. Fixed cost per unit:
A. Remains constant
B. Decreases as production increases
C. Increases with sales
D. Equals variable cost
✅ Answer: B
7. Which cost is both direct and variable?
A. Factory rent
B. Direct materials
C. CEO salary
D. Office rent
✅ Answer: B
8. Product costs include:
A. Selling expenses
B. Administrative expenses
C. Manufacturing costs
D. Interest expense
✅ Answer: C
9. Period costs are:
A. Inventoried
B. Expensed immediately
C. Included in inventory
D. Manufacturing overhead
✅ Answer: B
10. Indirect materials are classified as:
A. Direct labor
B. Manufacturing overhead
C. Selling expense
D. Administrative expense
✅ Answer: B
11. Factory supervisor salary is:
A. Direct labor
B. Manufacturing overhead
C. Selling expense
D. Administrative expense
✅ Answer: B
12. Which cost is controllable by a production manager?
A. Income taxB. Direct labor efficiency
C. Interest expenseD. Dividend payments
✅ Answer: B
13. Relevant costs are:
A. Historical costsB. Future costs differing among alternatives
C. Sunk costsD. Book values
✅ Answer: B
14. Opportunity cost is:
A. Recorded in accounting records
B. Benefit sacrificed by choosing one alternative
C. Manufacturing overhead
D. Historical cost
✅ Answer: B
15. Sunk costs should:
A. Affect decisionsB. Be ignored in decision making
C. Be capitalizedD. Be inventoried
✅ Answer: B
16. Which is a discretionary fixed cost?
A. Factory rentB. AdvertisingC. Property taxD. Insurance
✅ Answer: B
17. Mixed cost contains:
A. Only fixed element
B. Only variable element
C. Fixed and variable components
D. Direct materials only
✅ Answer: C
18. Step costs:
A. Change continuously
B. Remain fixed over a range then jump
C. Never change
D. Equal mixed costs
✅ Answer: B
19. Cost object refers to:
A. Inventory onlyB. Anything for which costs are measured
C. Cash accountD. Income statement
✅ Answer: B
20. Manufacturing overhead includes:
A. Direct materialsB. Direct labor
C. Factory utilitiesD. Sales salaries
✅ Answer: C
21. Cost behavior primarily depends on:
A. InflationB. Activity levelC. Tax ratesD. Interest rates
✅ Answer: B
22. Which is NOT inventoriable?
A. Direct materials
B. Direct labor
C. Factory overhead
D. Selling expense
✅ Answer: D
23. Direct labor refers to:
A. Security guards
B. Workers making the product
C. Salespersons
D. HR manager
✅ Answer: B
24. Which cost is avoidable?
A. Sunk cost
B. Future cost eliminated by a decision
C. Historical cost
D. Book value
✅ Answer: B
25. Which cost is irrelevant for future decisions?
A. Opportunity cost
B. Differential cost
C. Sunk cost
D. Incremental revenue
✅ Answer: C
FUNDAMENTAL ACCOUNTING CONCEPTS (US GAAP) (Q26–Q50)
26. US GAAP primarily requires financial statements prepared using:
A. Cash basis
B. Accrual basis
C. Modified cash basis
D. Tax basis
✅ Answer: B
27. Revenue is recognized when:
A. Cash is received
B. Performance obligation is satisfied
C. Invoice is printed
D. Goods are manufactured
✅ Answer: B
28. Expenses are recognized:
A. When paid
B. When incurred
C. When revenue collected
D. Year-end only
✅ Answer: B
29. Assets are:
A. Future obligations
B. Resources providing future economic benefits
C. Owner investments only
D. Revenues
✅ Answer: B
30. Liabilities represent:
A. Future economic benefits
B. Present obligations
C. Equity investments
D. Revenue
✅ Answer: B
31. Equity equals:
A. Assets + Liabilities
B. Assets − Liabilities
C. Revenue − Expenses
D. Cash + Inventory
✅ Answer: B
32. Inventory is reported at:
A. Market value always
B. Lower of cost or net realizable value
C. Selling price
D. Replacement cost only
✅ Answer: B
33. Depreciation allocates:
A. Market value
B. Cost over useful life
C. Cash payments
D. Inventory costs
✅ Answer: B
34. Which is a current asset?
A. Land
B. Patent
C. Accounts receivable
D. Building
✅ Answer: C
35. Which account normally has a credit balance?
A. Cash
B. Inventory
C. Revenue
D. Prepaid insurance
✅ Answer: C
36. Unearned revenue is:
A. Revenue earned
B. Liability
C. Asset
D. Expense
✅ Answer: B
37. Accrued expenses are:
A. Prepaid costs
B. Expenses incurred but unpaid
C. Revenues received
D. Inventory purchases
✅ Answer: B
38. Matching principle requires:
A. Cash receipts equal expenses
B. Expenses recognized with related revenues
C. Assets equal liabilities
D. Revenues recorded first
✅ Answer: B
39. Going concern assumes:
A. Company will liquidateB. Business continues operating
C. Company is bankruptD. Assets sold immediately
✅ Answer: B
40. Consistency principle means:
A. Same accounting methods over timeB. Same profit annually
C. Same inventoryD. Same sales
✅ Answer: A
41. Materiality means:
A. Every item is importantB. Significant information should influence users
C. Ignore all small transactionsD. Only cash matters
✅ Answer: B
42. Conservatism generally requires:
A. Overstate assets
B. Recognize probable losses sooner
C. Overstate revenue
D. Delay expenses
✅ Answer: B
43. Which financial statement reports profitability?
A. Balance Sheet
B. Statement of Cash Flows
C. Income Statement
D. Statement of Retained Earnings
✅ Answer: C
44. Balance Sheet reports:
A. Revenues
B. Expenses
C. Assets, liabilities, and equity
D. Cash flows
✅ Answer: C
45. Statement of Cash Flows classifies cash into:
A. Three activities
B. Two activities
C. Four activities
D. Five activities
✅ Answer: A
46. Accounts Receivable is:
A. Revenue
B. Liability
C. Asset
D. Expense
✅ Answer: C
47. Accounts Payable is:
A. Asset
B. Liability
C. Equity
D. Revenue
✅ Answer: B
48. Retained Earnings increase with:
A. Net income
B. Dividends
C. Treasury stock purchases
D. Expenses
✅ Answer: A
49. Which transaction increases both assets and liabilities?
A. Collect receivables
B. Purchase inventory on credit
C. Pay salaries
D. Declare dividends
✅ Answer: B
50. The fundamental accounting equation is:
A. Assets = Revenue + Expenses
B. Assets = Liabilities + Equity
C. Assets − Expenses = Revenue
D. Revenue = Assets − Liabilities
✅ Answer: B
US CMA Part 1 – Statement of Cash Flows (US GAAP) MCQs (1–10)
1. Which of the following is classified as an operating activity under US GAAP?
A. Purchase of equipment
B. Collection from customers
C. Issuance of common stock
D. Repayment of long-term debt
Answer: B
2. Under the indirect method, depreciation expense is:
A. Subtracted from net income
B. Added back to net income
C. Reported as an investing activity
D. Reported as a financing activity
Answer: B
3. An increase in Accounts Receivable during the year should be:
A. Added to net incomeB. IgnoredC. Deducted from net incomeD. Reported as financing cash flow
Answer: C
4. Which transaction is reported as an investing activity?
A. Payment of employee salariesB. Purchase of land for cash
C. Payment of dividendsD. Collection of accounts receivable
Answer: B
5. Which of the following is a financing activity under US GAAP?
A. Purchase of inventoryB. Sale of equipment
C. Issuance of bonds payableD. Collection of interest revenue
Answer: C
6. Cash received from customers is classified as:
A. Investing activity
B. Operating activity
C. Financing activity
D. Noncash activity
Answer: B
7. Under US GAAP, interest paid is classified as:
A. Financing activity
B. Investing activity
C. Operating activity
D. Noncash financing activity
Answer: C
8. Under US GAAP, dividends received are generally classified as:
A. Operating activity
B. Investing activity
C. Financing activity
D. Noncash activity
Answer: A
9. Which item is not included in cash and cash equivalents?
A. Treasury bills maturing in 60 days
B. Demand deposits
C. Three-month commercial paper
D. Equity securities held for trading
Answer: D
10. A company sold machinery with a book value of $40,000 for $50,000 cash. Under the indirect method, the gain of $10,000 is:
A. Added to net income
B. Deducted from net income
C. Reported as financing cash flow
D. Ignored
Answer: B
Questions 11–50 (Computational, Case-Based & Assertion–Reason MCQs)
Computational MCQs
11.Net income = $180,000
Depreciation = $25,000,Accounts Receivable increased by $12,000
Inventory decreased by $8,000,Accounts Payable increased by $15,000
Cash provided by operating activities is:
A. $216,000 B. $200,000 C. $190,000 D. $180,000
Answer: A
Calculation:
180,000 +25,000 –12,000 +8,000 +15,000 = 216,000
12.Net income = $250,000
Gain on sale of equipment = $18,000 Depreciation = $40,000
Accounts Receivable decreased = $15,000 Operating cash flow equals:
A. $287,000 B. $323,000 C. $305,000 D. $250,000
Answer: A
250 +40 –18 +15 = 287
13.
A company purchased machinery costing $600,000 by paying $150,000 cash and issuing a note payable for $450,000.
Cash outflow reported under investing activities is:
A. $600,000 B. $450,000 C. $150,000 D. None
Answer: B
15.Net income = $500,000
Depreciation = $45,000 Inventory increased = $30,000
Prepaid expenses decreased = $8,000 Operating cash flow equals:
A. $523,000 B. $507,000 C. $553,000 D. $485,000
Answer: A
16.Cash dividends paid during the year = $80,000.
Under US GAAP this is classified as:
A. OperatingB. InvestingC. FinancingD. Noncash
Answer: C
17.
The purchase of marketable securities (not cash equivalents) is:
A. Operating activity
B. Investing activity
C. Financing activity
D. Noncash activity
Answer: B
18.
A decrease in accrued liabilities should be:
A. Added to net income
B. Deducted from net income
C. Financing activity
D. Investing activity
Answer: B
19.
Cash received from collection of principal on a loan made to another company is:
A. Operating
B. Investing
C. Financing
D. Noncash
Answer: B
20.
Which transaction affects both investing and financing activities?
A. Purchase inventory
B. Purchase equipment by issuing common stock
C. Pay salaries
D. Collect receivables
Answer: B
Case-Based MCQs
Case 1
XYZ reported: Net income = $300,000 Depreciation = $40,000 Accounts Receivable increased = $20,000 Inventory decreased = $10,000 Accounts Payable decreased = $8,000
Equipment sold at gain = $12,000
21. Operating cash flow equals:
A. $310,000 B. $320,000 C. $330,000 D. $340,000
Answer: A
300+40−20+10−8−12=310
22. Gain on equipment sale should be:
A. Added
B. Deducted
C. Ignored
D. Financing
Answer: B
**23. Depreciation is added because:
A. It is financing income
B. It reduced accounting income but not cash
C. It increased liabilities
D. It increased revenue
Answer: B
Case 2
ABC purchased land for $250,000 cash. Issued shares for $400,000.
Paid dividends $50,000. Collected customers $900,000.
Paid suppliers $620,000.
24. Financing cash inflow equals
A. $350,000 B. $400,000 C. $450,000 D. $50,000
Answer: B
25. Investing cash outflow equals
A. $250,000 B. $620,000 C. $900,000 D. $50,000
Answer: A
26. Operating cash inflow from customers equals
A. $900,000 B. $620,000C. $280,000D. $50,000
Answer: A
27. Dividend payment is classified as
A. Operating B. Financing C. Investing D. Noncash
Answer: B
28. Which transaction is disclosed separately as noncash?
A. Equipment purchased by issuing stock B. Cash collection
C. Dividend payment D. Salary payment
Answer: A
29. Purchase of treasury stock is
A. OperatingB. InvestingC. FinancingD. Noncash
Answer: C
30.
A company repaid long-term debt.
Cash flow classification:
A. OperatingB. FinancingC. InvestingD. Noncash
Answer: B
Advanced Conceptual MCQs
31.
The indirect method starts with:
A. RevenueB. Gross profitC. Net incomeD. Cash sales
Answer: C
32.Which method is permitted by US GAAP?
A. Direct onlyB. Indirect onlyC. Either Direct or IndirectD. Neither
Answer: C
33.
The direct method reports:
A. Net income adjustmentsB. Major cash receipts and payments
C. Balance sheet changes onlyD. Financing activities only
Answer: B
34.
Issuing stock for equipment is:
A. OperatingB. InvestingC. FinancingD. Noncash investing & financing activity
Answer: D
35.
Interest received under US GAAP is:
A. OperatingB. FinancingC. InvestingD. Noncash
Answer: A
36.Income taxes paid are generally:
A. OperatingB. InvestingC. FinancingD. Noncash
Answer: A
37.
Purchase of a building for cash:
A. OperatingB. FinancingC. InvestingD. Noncash
Answer: C
38.
Sale of investment securities:
A. FinancingB. InvestingC. OperatingD. Noncash
Answer: B
39.
Increase in prepaid insurance results in:
A. Add to NI B. Deduct from NI
C. Financing D. Ignore
Answer: B
40.
Decrease in income taxes payable results in:
A. Add B. Deduct
C. Financing D. Investing
Answer: B
Assertion–Reason MCQs
41. Assertion (A): Depreciation is added back under the indirect method.
Reason (R): Depreciation reduces net income without reducing cash.
A. Both true and R explains A
B. Both true but R does not explain
C. A true R false
D. Both false
Answer: A
42.
A: Purchase of equipment is an investing activity.
R: Equipment is a long-term asset.
Answer: A
43.
A: Dividend payments are operating activities.
R: Dividends reduce retained earnings.
A. Both true
B. A true R false
C. A false R true
D. Both false
Answer: C
44.
A: Increase in Accounts Receivable decreases operating cash flow.
R: Sales exceeded cash collections.
Answer: A
45.
A: Issuing bonds increases financing cash flow.
R: Bonds increase long-term liabilitie
Answer: A
46.
A: Gain on sale of equipment increases operating cash flow.
R: Gain is deducted under indirect method.
A. Both true
B. A true R false
C. A false R true
D. Both false
Answer: C
47.
A: Direct method reports cash collected from customers.
R: Direct method converts accrual income into cash receipts and cash payments
Answer: A
48.
A: Cash paid to suppliers is an operating activity.
R: Inventory purchases relate to normal operations.
Answer: A
49.
A: Noncash investing and financing activities appear in the body of the cash flow statement.
R: They are disclosed separately in notes or a supplemental schedule.
A. Both true
B. A true R false
C. A false R true
D. Both false
Answer: C
50.
A: The Statement of Cash Flows helps evaluate liquidity.
R: It reports actual cash inflows and outflows by operating, investing, and financing activities.
A. Both true and R explains A
B. Both true but R does not explain
C. A true R false
D. Both false
Answer: A
US CMA Part 1 – Equity, Dividends & Treasury Stock (US GAAP)
30 Multiple Choice Questions with Answers
1. Which account is classified as a contra-equity account?
A. Retained Earnings
B. Additional Paid-in Capital
C. Treasury Stock
D. Preferred Stock
ANSWER C
2. Treasury stock represents:
A. Shares held by another company
B. Shares repurchased by the issuing company
C. Authorized but unissued shares
D. Preferred shares
Answer: B
3. Under US GAAP, treasury stock is generally recorded using the:
A. Fair Value Method
B. Cost Method
C. Equity Method
D. Par Value Method
Answer: B
4. Which dividend is declared before the end of the financial year?
A. Liquidating Dividend
B. Stock Dividend
C. Interim Dividend
D. Property Dividend
Answer: C
5. A cash dividend declared by the board creates a:
A. Revenue
B. Liability
C. Gain
D. Expense
Answer: B
6. On the declaration date of a cash dividend, the entry is:
A. Debit Cash, Credit Dividend PayableB. Debit Retained Earnings, Credit Dividend Payable
C. Debit Dividend Payable, Credit CashD. Debit Dividend Expense, Credit Cash
Answer: B
7. On the payment date of a cash dividend:
A. Debit Dividend Payable; Credit CashB. Debit Retained Earnings; Credit Cash
C. Debit Cash; Credit Dividend PayableD. Debit Dividend Expense; Credit Cash
Answer: A
8. Preferred shareholders generally receive dividends:
A. After common shareholders
B. Before common shareholders
C. Only when profits exceed 20%
D. Only upon liquidation
Answer: B
9. Preferred dividends in arrears apply to:
A. Noncumulative preferred stock
B. Cumulative preferred stock
C. Treasury stock
D. Common stock
Answer: B
10. Which type of preferred stock accumulates unpaid dividends?
A. Callable
B. Convertible
C. Cumulative
D. Participating
Answer: C
Stock Dividend Rules (20–25% Rule)
11. A stock dividend of 15% is classified as:
A. Large Stock Dividend
B. Small Stock Dividend
C. Stock Split
D. Liquidating Dividend
Answer: B
12. A stock dividend of 30% is classified as:
A. Small Stock DividendB. Large Stock DividendC. Interim DividendD. Property Dividend
Answer: B
13. Under US GAAP, a small stock dividend (less than 20–25%) is recorded at:
A. Par ValueB. Market ValueC. Book ValueD. Fair Value of liabilitie
Answer: B
14. A large stock dividend (more than 20–25%) is recorded at:
A. Market ValueB. Par ValueC. Book ValueD. Fair Value
Answer: B
15. Which statement is TRUE regarding stock dividends?
A. Total equity increasesB. Total assets increaseC. Total equity remains unchanged
D. Cash decreases
Answer: C
16. A company declares a 10% stock dividend. The market value of shares is used because it is:
A. A large stock dividend B. A small stock dividend
C. A stock split D. Treasury stock
Answer: B
17. A 40% stock dividend reduces retained earnings by:
A. Market value B. Fair value C. Par value D. No amount
Answer: C
18. Which event does NOT reduce total shareholders' equity?
A. Cash Dividend B. Treasury Stock Purchase
C. Stock Dividend D. Liquidating Dividend
Answer: C
Treasury Stock
19. Treasury stock has:
A. Voting rights B. Dividend rights
C. No voting or dividend rights D. Preference over common stock
Answer: C
20. Treasury stock appears in the balance sheet as:
A. Current Asset B. Long-term InvestmentC. Contra Equity D. Current Liability
Answer: C
21. Purchasing treasury stock causes:
A. Total assets to increaseB. Total equity to decrease
C. Retained earnings to increaseD. Liabilities to increase
Answer: B
22. Reissuing treasury stock above cost results in:
A. Gain on Income StatementB. Additional Paid-in Capital from Treasury Stock
C. RevenueD. Retained Earnings
Answer: B
23. Losses from reissuing treasury stock below cost are first charged against:
A. RevenueB. APIC from Treasury StockC. CashD. Accounts Receivable
Answer: B
24. Treasury stock may be acquired for all EXCEPT:
A. Employee compensation plans B. Increase EPS
C. Reduce hostile takeover risk D. Increase total assets
Answer: D
Preferred Dividend Computations
25.
A company has: 10,000 shares of 8%, $100 par cumulative preferred stock.
Annual preferred dividend equals:
A. $8,000 B. $80,000 C. $100,000 D. $800,000
Answer: B
Calculation: 10,000 × $100 × 8% = $80,000
26.
Preferred dividends in arrears for two years equal:
A. $80,000B. $160,000C. $40,000D. $200,000
Answer: B
27.
If total dividends declared are $250,000 and cumulative preferred dividends in arrears are $160,000, common shareholders receive:
A. $250,000B. $160,000C. $90,000D. Zero
Answer: C
Comprehensive Concept Questions
28. Which transaction decreases retained earnings?
A. Issuing common stockB. Stock dividendC. Cash dividend declaration
D. Treasury stock resale above cost
Answer: C
29. Which statement is FALSE?
A. Treasury stock reduces equity. B. Stock dividends distribute cash.
C. Preferred dividends are paid before common dividends.
D. Treasury stock is a contra-equity account.
Answer: B
30. Which of the following affects only the composition of shareholders' equity but not total equity?
A. Cash Dividend B. Stock Dividend
C. Treasury Stock Purchase D. Liquidating Dividend
Answer: B
PL READ…
US CMA Exam Tips
- Small Stock Dividend (<20–25%) → Record at Market Value.
- Large Stock Dividend (>20–25%) → Record at Par Value.
- Treasury Stock → Contra Equity, not an asset.
- Cash Dividend → Reduces Retained Earnings and Total Equity.
- Stock Dividend → Reduces Retained Earnings, increases Share Capital/APIC, but Total Equity remains unchanged.
- Interim Dividend → Declared during the financial year before annual results.
- Cumulative Preferred Stock → Dividends in arrears must be paid before any common dividend.
- Treasury Shares → No voting rights, no dividend rights, and are excluded from EPS calculations
Topics: Types of Costs, Overapplied & Underapplied Overhead, Overcosting & Undercosting, Cross-Subsidization, Job Order Costing, Journal Entries, Normal & Abnormal Spoilage
Types of Costs
1. Which cost changes in total in direct proportion to changes in activity level?
A. Fixed cost
B. Variable cost
C. Mixed cost
D. Step-fixed cost
Answer: B
2. Which cost remains constant in total regardless of production volume within the relevant range?
A. Variable cost
B. Fixed cost
C. Direct labor
D. Direct materials
Answer: B
3. Which of the following is most likely a direct cost for manufacturing furniture?
A. Factory rent
B. Wood used in tables
C. Factory supervisor salary
D. Electricity for factory lighting
Answer: B
4. Which of the following is an indirect manufacturing cost?
A. Direct laborB. Factory insuranceC. Direct materialsD. Sales commission
Answer: B
5. Prime cost equals:
A. Direct Material + Direct Labor
B. Direct Labor + Factory Overhead
C. Direct Material + Factory Overhead
D. Direct Material + Selling Expense
Answer: A
6. Conversion cost equals:
A. Direct Material + Direct Labor
B. Direct Labor + Manufacturing Overhead
C. Prime Cost + Selling Expense
D. Direct Material + Manufacturing Overhead
Answer: B
Job Order Costing
7. Job order costing is most appropriate for:
A. Oil refiningB. Chemical productionC. Custom furniture manufacturing
D. Cement production
Answer: C
8. The document used to accumulate costs for a specific job is the:
A. Materials requisition
B. Job cost sheet
C. Purchase order
D. Payroll register
Answer: B
9. Direct materials issued to production are recorded by:
A. Dr Work in Process; Cr Raw Materials B. Dr Finished Goods; Cr Cash
C. Dr Factory Overhead; Cr WIP D. Dr Cost of Goods Sold; Cr Inventory
Answer: A
10. Direct labor incurred is recorded by:
A. Dr Work in Process; Cr Wages Payable B. Dr Factory Overhead; Cr Wages Payable
C. Dr Finished Goods; Cr Cash D. Dr Cost of Goods Sold; Cr Wages Payable
Answer: A
11. Manufacturing overhead applied to production is recorded by:
A. Dr Manufacturing Overhead; Cr Work in Process
B. Dr Work in Process; Cr Manufacturing Overhead Applied
C. Dr Finished Goods; Cr Manufacturing Overhead
D. Dr Cost of Goods Sold; Cr Factory Overhead
Answer: B
12. When a completed job is finished, the entry is:
A. Dr Finished Goods; Cr Work in Process
B. Dr Cost of Goods Sold; Cr Finished Goods
C. Dr Cash; Cr Sales
D. Dr WIP; Cr Raw Materials
Answer: A
13. When finished goods are sold, the cost entry is:
A. Dr Cost of Goods Sold; Cr Finished Goods
B. Dr WIP; Cr Finished Goods
C. Dr Cash; Cr Sales
D. Dr Manufacturing Overhead; Cr Finished Goods
Answer: A
Predetermined Overhead & Over/Underapplied Overhead
14. Predetermined overhead rate equals:
A. Actual OH ÷ Actual DLH
B. Estimated OH ÷ Estimated Allocation Base
C. Budgeted Sales ÷ Budgeted Production
D. Actual OH ÷ Budgeted Units
Answer: B
15. Estimated OH = $600,000; Estimated Machine Hours = 30,000. Predetermined OH rate is:
A. $15 B. $18 C. $20 D. $25
Answer: C
16. Actual OH = $540,000; Applied OH = $560,000. Overhead is:
A. Underapplied $20,000 B. Overapplied $20,000
C. Underapplied $540,000 D. Balanced
Answer: B
17. Actual OH = $720,000; Applied OH = $690,000. Overhead is:
A. Overapplied $30,000 B. Underapplied $30,000
C. Balanced D. Overapplied $690,000
Answer: B
18. Underapplied overhead means:
A. Applied OH exceeds actual OH
B. Actual OH exceeds applied OH
C. No overhead exists
D. Direct labor exceeds budget
Answer: B
19. Overapplied overhead generally results in:
A. Cost of Goods Sold being overstated
B. Cost of Goods Sold being understated
C. Assets increasing
D. Sales increasing
Answer: A
Overcosting & Undercosting
20. A product is overcosted when:
A. Assigned cost exceeds actual cost
B. Assigned cost is less than actual cost
C. Sales exceed budget
D. Inventory increases
Answer: A
21. A product is undercosted when:
A. Cost assigned is too highB. Cost assigned is too low
C. Selling price exceeds costD. Inventory is overstated
Answer: B
22. Which costing system is more likely to reduce overcosting and undercosting?
A. Traditional costingB. Activity-Based Costing (ABC)
C. Standard costingD. Variable costing
Answer: B
Cross-Subsidization
23. Cross-subsidization occurs when:
A. One product receives costs that belong to another product
B. Sales exceed production
C. Fixed costs decrease
D. Variable costs become fixed
Answer: A
24. Which costing method minimizes cross-subsidization?
A. Job order costing
B. Activity-Based Costing
C. Absorption costing
D. Variable costing
Answer: B
Spoilage
25. Normal spoilage is:
A. Avoidable and abnormal
B. Expected under efficient operations
C. Charged directly to loss account
D. Recorded as an extraordinary item
Answer: B
26. Abnormal spoilage is:
A. Expected production loss
B. Included in inventory cost
C. Charged directly to current-period loss
D. Included in factory overhead
Answer: C
27. Normal spoilage cost is generally:
A. Included in product cost
B. Expensed immediately
C. Treated as a financing cost
D. Ignored
Answer: A
28. Which journal entry records abnormal spoilage?
A. Dr Loss from Abnormal Spoilage; Cr Work in Process
B. Dr Finished Goods; Cr WIP
C. Dr Manufacturing Overhead; Cr Cash
D. Dr Raw Materials; Cr WIP
Answer: A
29. Which statement regarding normal spoilage is TRUE?
A. It is excluded from inventory.
B. It increases product cost.
C. It is reported as a financing expense.
D. It is always charged to retained earnings.
Answer: B
30. Which of the following is TRUE regarding job order costing?
A. Costs are accumulated by department only.
B. Each job has its own job cost sheet.
C. It is used only in service industries.
D. It cannot use predetermined overhead rates.
ANSWER B
PL REFER…US CMA Part 1 Quick Revision Table
Topic | Key Point |
Prime Cost | Direct Materials + Direct Labor |
Conversion Cost | Direct Labor + Manufacturing Overhead |
Predetermined OH Rate | Estimated OH ÷ Estimated Allocation Base |
Overapplied OH | Applied OH > Actual OH |
Underapplied OH | Actual OH > Applied OH |
Overcosting | Assigned Cost > Actual Cost |
Undercosting | Assigned Cost < Actual Cost |
Cross-Subsidization | One product subsidizes another due to inaccurate cost allocation |
Normal Spoilage | Expected; included in product cost |
Abnormal Spoilage | Unexpected; expensed immediately |
Job Order Costing | Costs accumulated by individual job using a job cost sheet |
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