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ACG 5026 Final Questions and Correct
Answers
Cost Ans: the sacrifice of a resource
Cost Objective Ans: something for which we want a separate
measurement of cost
Opportunity Cost Ans: a foregone return
Differential Cost Ans: one that changes in response to some
action
Sunk Cost Ans: one that has resulted from a previous
expenditure
Direct Cost Ans: one that can be economically, feasibly traced to
the cost object
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Indirect Cost Ans: one that cannot be traced to the cost object
Variable Cost Ans: one that varies in total with the level of
activity (stays constant per unit)
Fixed Cost Ans: one that stays constant in total as activity levels
change (varies per unit)
Relevant Range Ans: the activity level over which fixed costs do
not change
Amortization Ans: systematic allocation of an intangible asset
over its useful life
Operating Leverage Ans: the extent to which there are fixed costs
in the cost structure
operating leverage equation Ans: Contribution Margin / Income
before Taxes
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Is it good to have a high operating leverage? Ans: double edged
sword, measures risk; lots of operating leverage means there are a
lot of fixed costs;
there is a greater opportunity for profit with increases in sales, but
also a greater risk of large loss when sales decrease
Margin of Safety Ans: amt of units by which actual or planned
units exceed the break-even point
Margin of Safety equation Ans: actual sales - break even sales
What is the difference between CM an GM Ans: CM represents the
amt that goes towards covering fixed costs and providing a profit
GM represents the amt that goes towards voering other expenses
and providing a profit
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Manufacturing Costs (Product) include: Ans: direct materials,
direct labor, manufacturing overhead
Direct Materials Ans: Raw materials that can be directly traceable
to the goods being produced
Direct Labor Ans: labor costs that can be directly traceable to the
goods being produced
Overhead (Indirect Costs) Ans: all other manufacturing costs
Non-manufacturing (Period) Costs Ans: include all costs outside
the factory such as SG&A
Contribution Margin Ans: sales - all variable costs
CM per unit Ans: selling price per unit - VC per unit
if Production > Sales, then Ans: absorption costing income >
variable costing income
© 2025 All rights reserved
ACG 5026 Final Questions and Correct
Answers
Cost Ans: the sacrifice of a resource
Cost Objective Ans: something for which we want a separate
measurement of cost
Opportunity Cost Ans: a foregone return
Differential Cost Ans: one that changes in response to some
action
Sunk Cost Ans: one that has resulted from a previous
expenditure
Direct Cost Ans: one that can be economically, feasibly traced to
the cost object
© 2025 All rights reserved
, 2 | Page
Indirect Cost Ans: one that cannot be traced to the cost object
Variable Cost Ans: one that varies in total with the level of
activity (stays constant per unit)
Fixed Cost Ans: one that stays constant in total as activity levels
change (varies per unit)
Relevant Range Ans: the activity level over which fixed costs do
not change
Amortization Ans: systematic allocation of an intangible asset
over its useful life
Operating Leverage Ans: the extent to which there are fixed costs
in the cost structure
operating leverage equation Ans: Contribution Margin / Income
before Taxes
© 2025 All rights reserved
, 3 | Page
Is it good to have a high operating leverage? Ans: double edged
sword, measures risk; lots of operating leverage means there are a
lot of fixed costs;
there is a greater opportunity for profit with increases in sales, but
also a greater risk of large loss when sales decrease
Margin of Safety Ans: amt of units by which actual or planned
units exceed the break-even point
Margin of Safety equation Ans: actual sales - break even sales
What is the difference between CM an GM Ans: CM represents the
amt that goes towards covering fixed costs and providing a profit
GM represents the amt that goes towards voering other expenses
and providing a profit
© 2025 All rights reserved
, 4 | Page
Manufacturing Costs (Product) include: Ans: direct materials,
direct labor, manufacturing overhead
Direct Materials Ans: Raw materials that can be directly traceable
to the goods being produced
Direct Labor Ans: labor costs that can be directly traceable to the
goods being produced
Overhead (Indirect Costs) Ans: all other manufacturing costs
Non-manufacturing (Period) Costs Ans: include all costs outside
the factory such as SG&A
Contribution Margin Ans: sales - all variable costs
CM per unit Ans: selling price per unit - VC per unit
if Production > Sales, then Ans: absorption costing income >
variable costing income
© 2025 All rights reserved
