Test on Management Accounting Principles and Methods

Question 1: The net operating incomes calculated using variable costing and absorption costing often yield different amounts.

A. Ano

B. Ne

Explanation: The study materials state that 'Net operating income calculations of the 2 often differ' due to the different treatment of fixed manufacturing overheads.

Question 2: Which of the following statements accurately describe the content and calculation of the Schedule of Cost of Goods Manufactured (COGM) and Cost of Goods Sold (COGS) based on the provided study materials?

A. The COGM schedule contains direct materials, direct labour, and manufacturing overheads, showing costs transferred from Work-in-Process (WIP) inventory to Finished Goods (FG) inventory.

B. Total manufacturing costs are calculated by adding direct materials, direct labour, and manufacturing overheads applied to WIP, which is then used in the COGM calculation.

C. The COGS schedule shows costs remaining in Finished Goods inventory and those transferred out of Finished Goods to COGS.

D. Unadjusted COGS is calculated by taking the beginning Finished Goods inventory, adding Cost of Goods Manufactured, and then subtracting the ending Finished Goods inventory.

Explanation: The study materials explicitly state that the COGM schedule 'Contain – direct materials, d. L. & man. o.' and 'shows costs remaining in WIP inventory and transferred to FG', making option 0 correct. For option 1, the materials define 'Total manufacturing costs calculation = direct materials + direct labour + manuf. Overheads applied to wip', which is a key component in COGM. Option 2 is directly from the materials: 'COGS – shows costs remaining in FG inventory and those transferred out of FG to COGS'. Lastly, option 3 accurately reflects the 'Unadjusted COGS calculation = BI of FG + COGM - EI of FG'. All options are fully supported by the provided study materials.

Question 3: Arbitrarily allocating common fixed costs to segments is an effective method for providing an accurate representation of a segment's individual profitability.

A. Ano

B. Ne

Explanation: Arbitrarily allocating common fixed costs to segments is a common mistake because there is no direct relationship, which can make segments appear unprofitable rather than accurately reflecting their profitability.

Question 4: A company is considering discontinuing Segment Alpha, which currently has a Segment Margin of -4,000 euros. If Segment Alpha is discontinued, management anticipates that sales in the related Segment Beta will increase by 15%. Segment Beta currently has sales of 10,000 euros and a Contribution Margin ratio of 60%. What would be the overall impact on the company's net operating income if Segment Alpha is discontinued and Segment Beta's sales increase as expected?

A. Net operating income will decrease by 1,000 euros.

B. Net operating income will increase by 4,900 euros.

C. Net operating income will increase by 900 euros.

D. Net operating income will increase by 5,500 euros.

Explanation: If a segment with a negative segment margin is removed, the net operating income increases by the absolute value of that segment margin. So, removing Segment Alpha (SM = -4,000 euros) will increase net operating income by 4,000 euros. Additionally, the increase in sales for Segment Beta needs to be calculated. Segment Beta's sales are expected to increase by 15% of its current 10,000 euros, which is 1,500 euros (15% * 10,000 euros). With a Contribution Margin ratio of 60%, this increase in sales will generate an additional 900 euros in Contribution Margin (1,500 euros * 60%). The total increase in net operating income is the sum of the savings from removing Segment Alpha and the additional Contribution Margin from Segment Beta: 4,000 euros + 900 euros = 4,900 euros.

Question 5: The activity variance component of a flexible budget variance measures the difference between actual revenues and budgeted revenues at the actual level of activity.

A. Ano

B. Ne

Explanation: The activity variance component of a flexible budget variance measures the impact of the actual versus budgeted level of activity on revenues and costs. The revenue (spending) variance, not the activity variance, compares actual revenue to budgeted revenue at the actual level of activity.