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BEC - CPA exam

Product cost

Is Normal Spoilage a product or period cost?

Period cost

Is Abnormal Spoilage a product or period cost?

Added to EFU

How does Abnormal Spoilage affect EFU calculation?

Conversion Costs

Direct labor and Overhead


An unfavorable variance is a


A favorable variance is a

Material Price Variance

Actual Units x Actual Price
Actual Units x Standard Price

Material Usage Variance

Actual Units x Standard Price
Standard Units x Standard Price

Labor Rate Variance

Actual Hours x Actual Rate
Actual Hours x Standard Rate

Labor Efficiency Variance

Actual Hours x Standard Rates
Standard Hours x Standard Rates

Margin of Safety

Difference between actual (or budgeted) sales and the sales at the break-even point

Contribution Margin Ratio

Total Contribution Margin / Total Sales

Formula for Break-Even Point in Dollars

Fixed Expenses / Contribution Margin ratio

Formula for Break-Even Point in Units

Total Fixed Costs / Contribution Margin per unit


If production equals sales, what is the relationship of direct profit to absorption profit?

Absorption costing

If production is less than sales, profit is less under:
a. Absorption costing
b. Direction costing


When absorption costs are less than direct costs, you have produced _____ than you sold.


If production is greater than sales, profit is _______ under absorption than directing costing.

Expected Annual Capacity

Most common approach to application of overhead.

Expected Annual Capacity

Adjusts theoretical volume for the expected output for the current year only.

Normal Volume

Adjusts theoretical capacity for long run product demand over a multiple year period.

Practical Capacity

Output produced 100% of the time less output lost due to non-production time.

Theoretical Capacity

Output is produced 100% of the time.

Relevant Range

Level of activity where fixed costs remain fixed

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