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Free CMA Exam Braindumps (page: 110)

Page 110 of 336
PDF with 1336 Questions
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The terms direct cost and indirect cost are commonly used in accounting. A particular cost might be considered a direct cost of a manufacturing department but an indirect cost of the product produced in the manufacturing department. Classifying a cost as either direct or indirect depends upon

  1. The behavior of the cost in response to volume changes.
  2. Whether the cost is expensed in the period in which it is incurred.
  3. The cost object to which the cost is being related.
  4. Whether an expenditure is unavoidable because it cannot be changed regardless of any action taken.

Answer(s): C

Explanation:

A direct cost can be specifically associated with a single cost object in an economically feasible way. An indirect cost cannot be specifically associated with a single cost object. Thus, the specific cost object influences whether a cost is direct or indirect. For example, a cost might be directly associated with a single plant. The same cost, however, might not be directly associated with a particular department in the plant.



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An assembly plant accumulates its variable and fixed manufacturing overhead costs in a single cost pool, which is then applied to work in process using a single application base. The assembly plant management wants to estimate the magnitude of the total manufacturing overhead costs for different volume levels of the application activity base using a flexible budget formula. If there is an increase in the application activity base that is within the relevant range of activity for the assembly plant, which one of the following relationships regarding variable and fixed costs is true?

  1. The variable cost per unit is constant, and the total fixed costs decrease.
  2. The variable cost per unit is constant, and the total fixed costs increase.
  3. The variable cost per unit and the total fixed costs remain constant.
  4. The variable cost per unit increases, and the total fixed costs remain constant.

Answer(s): C

Explanation:

Total variable cost changes when changes in the activity level occur within the relevant range. The cost per unit for a variable cost is constant for all activity levels within the relevant range. Thus, if the activity volume increases within the relevant range, total variable costs will increase. A fixed cost does not change when volume changes occur in the activity level within the relevant range. If the activity volume increases within the relevant range, total fixed costs will remain unchanged.



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The difference between variable costs and fixed costs is

  1. Variable costs per unit fluctuate and fixed costs per unit remain constant.
  2. Variable costs per unit are fixed over the relevant range and fixed costs per unit are variable.
  3. Total variable costs are variable over the relevant range and fixed in the long term, while fixed costs never change.
  4. Variable costs per unit change in varying increments, while fixed costs per unit change in equal increments.

Answer(s): B

Explanation:

Fixed costs remain unchanged within the relevant range for a given period despite fluctuations in activity, but per unit fixed costs do change as the level of activity changes. Thus, fixed costs are fixed in total but vary per unit as activity changes. Total variable costs vary directly with activity. They are fixed per unit, but vary in total.



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"Committed costs" are

  1. Costs which management decides to incur in the current period to enable the company to achieve objectives other than the filling of orders placed by customers.
  2. Costs which are likely to respond to the amount of attention devoted to them by a specified manager.
  3. Costs which are governed mainly by past decisions that established the present levels of operating and organizational capacity and which only change slowly in response to small changes in capacity.
  4. Amortization of costs which were capitalized in previous periods.

Answer(s): C

Explanation:

Committed costs are those which are required as a result of past decisions.



Page 110 of 336



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