CPA Business Environment and Concepts (BEC) : Absorption Costing
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Example Questions
Example Question #1 : Absorption Costing
Which of the following costs are included in product or inventoriable costs in an absorption costing system? Direct material, direct labor, and:
all overhead and all period expenses
variable overhead
all overhead
all overhead and selling expenses
all overhead
All overhead costs are included in product or inventoriable costs in an absorption system along with direct material and labor costs.
Example Question #13 : Operations Management: Cost Accounting
Many companies have made significant strides in reducing their inventories. Which of the following would be least likely to encourage managers to reduce inventory?
Using absorption costing
Instituting a charge against the budget for managers based on the size of the inventory
Using variable costing
Using throughput costing
Using absorption costing
By using absorption costing managers have the least incentive to reduce the current amount of inventory.
Example Question #3 : Absorption Costing
In situations when management must decide on accepting or rejecting one time only special orders, where there is sufficient idle capacity, which one of the following is not relevant to the decision?
Direct costs
Absorption costs
Variable costs
Incremental costs
Incremental costs
Incremental costs are the only costs not relevant to the make or buy special order decision.
Example Question #4 : Absorption Costing
A cost that bears an observable and known relationship to a quantifiable activity base is a:
Target cost
Engineered cost
Fixed cost
Indirect cost
Engineered cost
An engineered cost bears an observable and known relationship to a quantifiable activity base.
Example Question #5 : Absorption Costing
Costs are allocated to cost objectives in many ways and for many reason. Which of the following is a purpose of cost allocation?
Implementing ABC
Evaluating revenue center performance
Aiding in variable costing for internal reporting
Measuring income and assets for external reporting
Measuring income and assets for external reporting
Cost allocation is essential for measuring income and assets for external reporting.
Example Question #6 : Absorption Costing
Which of the following is another name for Activity Based Costing?
Cost driver costing
Absorption costing
Cost center costing
Transaction based costing
Transaction based costing
When the cost driver is the number of transactions involved in a particular activity, ABC is referred to as transaction-based costing.
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