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Question 1. Which of the following best defines a direct cost? A) Cost incurred for administrative support across multiple projects B) Cost that can be traced to a specific cost object without allocation C) Cost that remains constant regardless of output level D) Cost that has already been incurred and cannot be recovered Answer: B Explanation: Direct costs are those that can be directly traced to a single cost object, such as a product or project, without the need for allocation. Question 2. An expense that will not change regardless of the level of activity is classified as: A) Variable cost B) Fixed cost C) Mixed cost D) Sunk cost Answer: B Explanation: Fixed costs remain constant over a relevant range of activity and do not vary with output. Question 3. Which cost type is considered irrelevant for future decision‑making because it cannot be recovered? A) Opportunity cost B) Sunk cost C) Incremental cost
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D) Joint cost Answer: B Explanation: Sunk costs have already been incurred and cannot be altered by any future decision, making them irrelevant for decision‑making. Question 4. In cost‑behavior analysis, a cost that changes in a non‑linear fashion as activity increases is known as: A) Step cost B) Linear variable cost C) Mixed cost D) Non‑linear variable cost Answer: D Explanation: Non‑linear variable costs do not follow a straight‑line relationship with activity; they may increase at an accelerating or decelerating rate. Question 5. Which of the following statements about the cost‑life‑cycle phase “project execution” is correct? A) Only indirect costs are incurred. B) The cost baseline is established for the first time. C) Actual costs are recorded and compared to the baseline. D) All costs become sunk at this stage. Answer: C
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A) Adding up individual component costs. B) Applying a statistical relationship between cost drivers and cost. C) Using expert judgment only. D) Taking the average of optimistic, most likely, and pessimistic estimates. Answer: B Explanation: Parametric estimation uses a mathematical model (e.g., cost per square foot) linking cost drivers to total cost. Question 9. The three‑point estimating technique (PERT) calculates the expected cost using which formula? A) (Optimistic + Most Likely + Pessimistic) / 3 B) (Optimistic + 4×Most Likely + Pessimistic) / 6 C) (Optimistic + 2×Most Likely + Pessimistic) / 4 D) (Optimistic × Most Likely × Pessimistic)^(1/3) Answer: B Explanation: The PERT weighted average gives more weight to the most likely estimate, improving accuracy. Question 10. The cost baseline is: A) The total of all approved change orders. B) The original estimate before any scope changes. C) The time‑phased budget approved for project execution. D) The sum of all actual costs incurred to date.
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Answer: C Explanation: The cost baseline is the approved, time‑phased budget that serves as a reference for measuring project performance. Question 11. Which resource‑planning activity directly influences the accuracy of a cost estimate? A) Defining the project charter. B) Conducting stakeholder analysis. C) Developing a detailed work breakdown structure (WBS). D) Performing risk audits. Answer: C Explanation: A detailed WBS decomposes the project into manageable components, enabling precise resource identification and cost estimation. Question 12. In regression analysis, the coefficient of determination (R²) indicates: A) The slope of the cost‑activity line. B) The proportion of variance in cost explained by the independent variable. C) The probability that the regression model is invalid. D) The intercept of the cost‑activity line. Answer: B Explanation: R² measures how well the independent variable(s) explain the variation in the dependent variable (cost). Question 13. Which capital‑budgeting method discounts cash flows to present value?
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Answer: B Explanation: ZBB assumes no baseline and forces managers to justify all budget items anew. Question 16. In incremental budgeting, the primary driver for the new budget is: A) Historical actuals plus a percentage increase. B) A bottom‑up aggregation of all activities. C) A detailed activity‑cost driver analysis. D) A zero‑base justification for each line item. Answer: A Explanation: Incremental budgeting adds a predetermined increment (e.g., inflation) to the previous period’s budget. Question 17. Activity‑Based Budgeting (ABB) differs from traditional budgeting because it: A) Uses only fixed costs for forecasting. B) Allocates resources based on activities that drive costs. C) Ignores the cost of overhead. D) Relies solely on historical spending patterns. Answer: B Explanation: ABB bases the budget on the cost of activities, linking resources directly to the work that consumes them. Question 18. A master budget typically includes all of the following EXCEPT: A) Sales budget
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B) Production budget C) Cash flow budget D) Individual employee performance bonuses Answer: D Explanation: While master budgets integrate financial plans, individual bonuses are usually part of compensation planning, not the master budget. Question 19. Which technique helps ensure sufficient cash for day‑to‑day operations? A) Capital budgeting B) Liquidity ratio analysis C) Earned value management D) Activity‑based costing Answer: B Explanation: Liquidity ratio analysis (e.g., current ratio) assesses an organization’s ability to meet short‑term obligations, supporting cash flow management. Question 20. The schedule variance (SV) in Earned Value Management is calculated as: A) EV – AC B) PV – EV C) EV – PV D) AC – PV Answer: C
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B) Future performance will be as planned. C) The project will be terminated early. D) All remaining work will be performed at the original budgeted cost. Answer: B Explanation: This EAC calculation assumes that the remaining work will be completed exactly as budgeted (BAC – EV). Question 24. The primary purpose of standard costing is to: A) Record actual costs for tax reporting. B) Provide a benchmark for evaluating performance. C) Eliminate the need for variance analysis. D) Determine cash flow requirements. Answer: B Explanation: Standard costs serve as predetermined benchmarks against which actual costs are compared to assess efficiency. Question 25. A favorable price variance occurs when: A) Actual price > Standard price. B) Actual price < Standard price. C) Actual quantity > Standard quantity. D) Actual quantity < Standard quantity. Answer: B
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Explanation: When the actual price paid is lower than the standard price, the price variance is favorable. Question 26. In variance analysis, an unfavorable efficiency variance indicates: A) Higher than expected price paid. B) More input used than allowed by standards. C) Lower output than planned. D) Savings due to better productivity. Answer: B Explanation: Efficiency (or usage) variance compares actual quantity to standard quantity; using more than allowed yields an unfavorable variance. Question 27. The Balanced Scorecard adds which non‑financial perspective to traditional financial metrics? A) Market share only B) Customer, internal process, and learning & growth C) Regulatory compliance only D) Taxation strategy Answer: B Explanation: The Balanced Scorecard incorporates customer, internal processes, and learning & growth perspectives alongside financial measures. Question 28. Activity‑Based Costing (ABC) assigns overhead costs based on: A) Direct labor hours alone.
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Explanation: Break‑even units = Fixed Costs / (Sales price per unit – Variable cost per unit), which is the contribution margin per unit. Question 31. Which inventory valuation method results in the highest net income during periods of rising prices? A) FIFO B) LIFO C) Weighted average D) Specific identification Answer: A Explanation: FIFO assumes older (lower‑cost) items are sold first, leaving higher‑cost inventory on hand, thus raising cost of goods sold and net income when prices rise. Question 32. Just‑in‑Time (JIT) inventory management primarily aims to: A) Increase safety stock levels. B) Reduce lead times and inventory holding costs. C) Maximize bulk purchasing discounts. D) Decrease order frequency. Answer: B Explanation: JIT seeks to receive goods only as needed, minimizing inventory levels, storage costs, and waste. Question 33. Value engineering focuses on: A) Adding new features regardless of cost.
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B) Reducing function to cut costs. C) Improving function while reducing cost. D) Outsourcing all production activities. Answer: C Explanation: Value engineering analyzes functions to achieve the same performance at lower cost, enhancing value. Question 34. Monte Carlo simulation is used in risk management to: A) Identify the single most likely cost overrun. B) Generate a deterministic cost estimate. C) Model the probability distribution of possible outcomes. D. Eliminate all uncertainty from the budget. Answer: C Explanation: Monte Carlo simulation runs many random trials to produce a probability distribution of cost outcomes, helping quantify risk. Question 35. A management reserve is distinct from a contingency reserve because: A) It is used for known risks. B) It is approved for specific risk responses. C) It is controlled by senior management for unforeseen events. D) It is included in the project’s cost baseline. Answer: C
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C) Time & Materials (T&M) D) Incentive‑based Answer: B Explanation: In cost‑reimbursable contracts, the buyer reimburses the seller for allowable costs plus fee, bearing most cost risk. Question 39. Under a Fixed‑Price contract, the seller is incentivized to: A) Increase the quantity of work performed. B) Minimize costs to maximize profit. C. Submit change orders frequently. D. Delay project completion. Answer: B Explanation: Fixed‑price contracts give the seller a fixed revenue, so any cost savings directly increase profit. Question 40. The AAFM/GAFM Code of Ethics requires a cost professional to: A) Prioritize client profit over public interest. B) Disclose all material conflicts of interest. C. Share confidential client data with competitors. D. Avoid continuing professional education. Answer: B Explanation: Integrity and objectivity demand disclosure of material conflicts of interest.
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Question 41. A well‑designed management dashboard for senior executives should: A. Include detailed line‑item transaction data. B. Present key performance indicators (KPIs) with trend visualizations. C. Show raw journal entries. D. List all project team members. Answer: B Explanation: Executives need concise, high‑level KPIs and trends to make strategic decisions, not granular detail. Question 42. An audit trail is essential because it: A. Guarantees project success. B. Provides evidence that transactions are recorded accurately and can be traced. C. Eliminates the need for internal controls. D. Reduces the amount of documentation required. Answer: B Explanation: An audit trail enables verification of the authenticity and completeness of financial records. Question 43. Which of the following is a characteristic of a mixed (semi‑variable) cost? A. It remains constant regardless of activity. B. It varies directly and proportionally with activity. C. It contains both a fixed component and a variable component.
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A. Direct material cost per unit. B. Salary of a supervisor paid monthly regardless of output. C. Maintenance cost that jumps to a higher tier when production exceeds 10,000 units. D. Electricity cost that rises linearly with machine hours. Answer: C Explanation: Step costs remain constant over a range then jump to a higher level when a threshold is crossed. Question 47. The primary purpose of a cost baseline change control process is to: A. Allow unlimited scope changes without documentation. B. Ensure that all changes are evaluated for cost, schedule, and scope impact before approval. C. Eliminate the need for variance analysis. D. Freeze the budget for the entire project life. Answer: B Explanation: Change control evaluates and documents impacts, preserving baseline integrity. Question 48. Which of the following is NOT a typical input to a three‑point estimate? A. Optimistic cost estimate. B. Most likely cost estimate. C. Pessimistic cost estimate. D. Historical cost variance. Answer: D
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Explanation: Historical cost variance is not a direct input; the three estimates are optimistic, most likely, and pessimistic. Question 49. When calculating the Net Present Value (NPV), which cash flow is excluded? A. Initial investment outflow. B. Annual operating cash inflows. C. Terminal salvage value. D. Non‑cash depreciation expense. Answer: D Explanation: NPV uses actual cash flows; depreciation is a non‑cash expense and is not included directly. Question 50. A project’s Payback Period is defined as: A. The time required to recover the initial investment from cumulative cash inflows. B. The discounted period to achieve a zero NPV. C. The time to complete the project schedule. D. The period required to achieve the target profit. Answer: A Explanation: Payback Period measures how long it takes for cash inflows to equal the initial outlay. Question 51. Which budgeting method is most appropriate when an organization wants to align resources with strategic initiatives rather than historical spending? A. Incremental budgeting
