Question

8.         A variable cost

            a.   decreases in total with increases in volume

            b.   increases on a per-unit basis with increases in volume

            c.   increases in total with increases in volume

            d.   decreases on a per-unit basis with increases in volume

            e.   None of the above

9.   In standard costing, the upper and lower control limits are used to determine

            a.   the direction of the variance

            b.   the dollar amount of the variance

            c.   whether or not to investigate a variance

            d.   All of the above

            e.   None of the above

10. The direct materials usage variance is part of the performance evaluation of the

            a.   production manager

            b.   sales manager

            c.   purchasing agent

            d.   controller’s office

            e.   None of the above

11. Volume variances are generally the responsibility of the

            a.   purchasing agent

            b.   production manager

            c.   sales manager

            d.   controller’s office

            e.   None of the above

12. When using variable costing,

            a.   all fixed costs are deducted on the variable costing income statement

            b.   the total cost of goods sold is deducted on the variable costing income statement

            c.   the cost allocated to ending inventory consists of both fixed and variable costs

            d.   the total contribution margin on the variable costing income statement is based on units produced

            e.   None of the above

13. According to GAAP, if the ending balance in the overhead control account is considered immaterial,

            a.   it is closed to direct materials, work-in-process, and finished goods

            b.   it is closed to work-in-process, finished goods, and cost of goods sold

            c.   it is closed to finished goods and cost of goods sold

            d.   the total is closed to cost of goods sold

            e.   None of the above

14. According to the IMA’s Statement of Ethical Professional Practice, an accountant must “Disclose all relevant information that could reasonably be expected to influence an intended user's understanding of the reports, analyses, or recommendations.” This falls under the category of

            a.   Competence

            b.   Confidentiality

            c.   Integrity

            d.   Credibility

            e.   None of the above

15. The margin of safety is

            a.   the amount of revenue earned (or expected to be earned) above the break-even point

            b.   the amount of revenue earned (or expected to be earned) above total fixed costs

            c.   the amount of revenue earned (or expected to be earned) above total costs

            d.   the amount of revenue earned (or expected to be earned) above total variable costs

            e.   None of the above

Answer 1

8	C
	A variable cost is defined as change in cost with every unit increase or decrease in production or consumption. They rise as production increases and falls as production decreases. Variable cost is constant for each unit. Total cost increases or decreases with production volume.
	Hence, option C is correct as total cost increases with increase in volume
9	C
	Control limits are set in standard costing to assess whether variance falls within acceptable limit or not. If variances are within acceptable limits, system is understood to be stable and if falling outside the control limits then it require investigation before system becomes dysfunctional.
	Hence, option c is correct
10	A
	Variance analysis of standard costing is important evaluation tool in the books of production manager to understand the interventions required. Production manager's KPI include assessing the variance. Further, production manager is responsible for maintainence of costing books and need to asess the norma and abnormal wastages/deviations.
	Hence, option a is correct
11	B
	Production manager has responsibility to manage the production level at standard/ budgetted level. Any deviation needs explanation from the production manager.
12	D.
	Variable costing is a methodology that only assigns variable costs to inventory. This approach means that all overhead costs are charged to expense in the period incurred, while direct materials and variable overhead costs are assigned to inventory. Variable costing income statement begins with sales and next variable cost is deducted to compute contribution margin. Total contribution margin increases with increase in volume and vice-versa.
13	D
	Overhead control account represents the transfer of amounts of under and over absorption of overheads, the sale value of goods sold, and the balance from the Cost of Sales Account. Abnormal losses or gains are debited and credited to this account. The closing balance of this account represents the under or over absorption. Closing balance in GAAP is transferred to cost of goods sold.
14	E
	Materiality within auditing and accounting relates to the importance/significance of an amount, transaction, or discrepancy or disclosure. Integrity refers to having strong ethical standards and honesty, and by extension, integrity audits are ways that the government checks to make sure companies are operating in an ethical, fair, and honest manner. Competence refers to capability in terms of professional expertise. Credibility is unrelated concept to audit. Confidentiality refers to non-disclosure of information.
15	A
	Margin of safety refers how much output or sales level can fall before a business reaches its break-even point. It refers to revenue earned over and above Breaeven point