#1
Which of the following is a key principle of cost management?
Minimizing cost
ExplanationCost management aims to reduce expenses.
#2
What is the difference between fixed and variable costs?
Fixed costs remain constant regardless of production volume, while variable costs change.
ExplanationFixed costs don't change with production, while variable costs do.
#3
What is the difference between direct costs and indirect costs?
Direct costs are traceable to a specific cost object, while indirect costs are not directly traceable.
ExplanationDirect costs are identifiable with specific items, while indirect costs are not.
#4
What is the difference between marginal costing and absorption costing?
Marginal costing is used for internal reporting, while absorption costing is used for external reporting.
ExplanationMarginal costing focuses on variable costs, while absorption costing includes fixed overheads.
#5
What is the difference between cost control and cost reduction?
Cost control aims to maintain costs at a desired level, while cost reduction aims to decrease costs from current levels.
ExplanationCost control maintains costs within specified limits, while cost reduction lowers expenses.
#6
What does 'cost allocation' refer to in cost management?
Assigning indirect costs to products or services
ExplanationCost allocation assigns overhead costs to specific items.
#7
What is the purpose of activity-based costing (ABC) in cost management?
To allocate costs based on activities
ExplanationABC assigns costs to activities to identify their true costs.
#8
What is the purpose of a cost variance analysis?
To compare actual costs with budgeted costs
ExplanationIt helps identify deviations between actual and expected expenses.
#9
What is the concept of opportunity cost in cost management?
The cost of missed opportunities
ExplanationOpportunity cost is the value of the next best alternative.
#10
What is the primary goal of cost management?
To minimize costs while achieving desired objectives
ExplanationCost management seeks to balance expenses with objectives.
#11
What is the formula for calculating the contribution margin ratio?
(Total Revenue - Total Variable Costs) / Total Revenue
ExplanationContribution margin ratio measures profitability.
#12
In cost management, what does 'cost control' involve?
Reducing costs
ExplanationCost control aims to manage and reduce expenses.
#13
What does the term 'cost behavior' refer to in cost management?
How costs change as production volume changes
ExplanationIt examines how costs respond to changes in activity levels.
#14
What role does the cost of capital play in cost management decisions?
It is considered in investment decisions
ExplanationCost of capital influences project feasibility.
#15
What is the concept of 'sunk costs' in cost management?
Costs that have been incurred and cannot be recovered
ExplanationSunk costs are already spent and not retrievable.