AGA GAFRB Exam Questions - Real Practice Questions for Guaranteed Success

Question 1

When determining the full costs of a specific product or service, if the costs cannot be directly traced to the product or service, the costs should be assigned based upon

Aa direct labor relationship.

Ban opportunity cost approach.

Can incremental or marginal relationship.

Da cause-and-effect relationship between resource costs and outputs.
When full costs cannot be directly traced to a product or service, indirect costs must be allocated using a rational and systematic basis. The preferred method is to use a cause-and-effect relationship between the resource consumed and the output generated. This aligns with cost accounting principles under FASAB SFFAS No. 4 and managerial accounting frameworks.
Other options, such as direct labor or opportunity cost approaches, may be helpful in specific settings but do not meet the standard requirement for full cost allocation.
Relevant Reference:
FASAB SFFAS No. 4 -- Managerial Cost Accounting Standards
OMB Circular A-136 -- Full Cost Accounting
GAO Cost Estimating and Assessment Guide
Answer : D. a cause-and-effect relationship between resource costs and outputs

Correct : D

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Aa direct labor relationship.

Ban opportunity cost approach.

Can incremental or marginal relationship.

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Question 2

A special-purpose government is considered a primary government when it has any of the following characteristics EXCEPT that it

Arelies on revenue projections from another government entity.

Bhas the ability to levy taxes.

Chas a board determined via general election.

Dprovides an ongoing financial benefit to another government entity.
A special-purpose government (e.g., a school district, utility authority) is considered a primary government when it meets at least one of the following conditions:
Has a separately elected governing body
Is legally separate
Is fiscally independent of other governments
The reliance on revenue projections from another entity does not preclude a government from being a primary government. What matters is legal and fiscal independence.
Relevant Reference:
GASB Statement No. 14 -- The Financial Reporting Entity
GASB Statement No. 39 and No. 61 (Amendments to Statement 14)
GASB Codification Section 2100 -- Defining the Financial Reporting Entity
Answer : A. relies on revenue projections from another government entity

Correct : A

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Arelies on revenue projections from another government entity.

Bhas the ability to levy taxes.

Chas a board determined via general election.

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Question 3

Based on FASAB standards, calculate the full cost of 1 unit of an output using the following information:

A$ 3,989,400

B$ 4,909,400

C$ 5,029,400

D$25,147,000

Correct : D

Under FASAB standards, specifically SFFAS No. 4, Managerial Cost Accounting Standards, the full cost of an output includes:

Direct costs (e.g., direct material and labor)

Indirect costs (e.g., inter-entity costs, overhead, services)

In-kind contributions

Any support service costs

Depreciation or amortization, if applicable

We will now compute the full cost of all 5 units and then divide by 5 to obtain the cost per unit.

Step 1: List and sum all relevant costs.

Direct Material: $11,267,000

Direct Labor: $5,980,000

Inter-entity Costs: $1,500,000

Accounting and Contracting Services: $500,000

Physical and Data Security: $700,000

In-kind Logistics Services: $500,000

Warehouse Lease: $1,000,000

Parking Lot Construction: $3,000,000

Equipment Installation: $600,000

New Employee Training: $100,000

Total Full Cost =

$11,267,000

$5,980,000

$1,500,000

$500,000

$700,000

$500,000

$1,000,000

$3,000,000

$600,000

$100,000

= $25,147,000

Step 2: Calculate cost per unit (based on 5 outputs):

Cost per unit = $25,147,000 5 = $5,029,400

But the question specifically asks:

''Based on FASAB standards, calculate the full cost of 1 unit of an output...''

So, the correct answer (full cost of all units) is:

Answer : D. $25,147,000

If they had asked for cost per unit, then the answer would be:

= $5,029,400 Option C

Note: Option C is a distractor here and would only be correct if the question specifically asked for per unit cost.

Relevant Standards and Reference:

FASAB Statement of Federal Financial Accounting Standards (SFFAS) No. 4: Managerial Cost Accounting Concepts and Standards

OMB Circular A-136: Financial Reporting Requirements

Treasury Financial Manual (TFM), Volume I, Part 2, Chapter 4700

Therefore, the correct answer to the full cost (not per unit) is:

Answer : D. $25,147,000.

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A$ 3,989,400

B$ 4,909,400

C$ 5,029,400

D$25,147,000

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Question 4

In state and local financial audits, material weaknesses must be reported to the

Alegislature.

Bgoverning body.

Ctaxpayers.

Dlocal media.
What Are Material Weaknesses?
A material weakness in internal control is a deficiency or combination of deficiencies that creates a reasonable possibility of a material misstatement in the financial statements that would not be prevented or detected in a timely manner.
In the context of state and local financial audits, material weaknesses must be reported to those charged with governance, as they are responsible for oversight and corrective actions.
Why Is the Governing Body the Correct Answer?
The governing body (e.g., city council, county board, or state commission) is directly responsible for overseeing the entity's financial operations and ensuring accountability. Reporting material weaknesses to them ensures that corrective actions can be implemented to strengthen internal controls.
Auditors communicate such findings through an audit report or a management letter addressed to the governing body.
Why Other Options Are Incorrect:
A . Legislature: The legislature may have oversight of state budgets and appropriations but is not the direct governing body for financial audits.
C . Taxpayers: While transparency is important, material weaknesses are not directly reported to taxpayers. They may be disclosed in public audit reports, but taxpayers are not the primary audience.
D . Local media: Material weaknesses are not formally reported to the media; their disclosure depends on the entity's public reporting processes.
Reference and Documents:
GAO Yellow Book (GAGAS): Requires auditors to report material weaknesses to those charged with governance.
GASB (Governmental Accounting Standards Board): Emphasizes the importance of communicating significant audit findings to governing bodies.
AICPA Audit Standards (AU-C 265): Requires auditors to communicate material weaknesses to management and those charged with governance.

Correct : B

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Alegislature.

Bgoverning body.

Ctaxpayers.

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Question 5

According to GAAP, all of the following should be addressed in the MD&A EXCEPT

Aa discussion of the basic financial statements.

Ban overall analysis.

Ccomputation of legal debt margins.

Dcondensed comparative data.
Management's Discussion and Analysis (MD&A) is a required part of Required Supplementary Information (RSI) under GASB standards. It includes:
An overview and analysis of financial activities
Condensed comparative financial data
A discussion of the basic financial statements
An explanation of significant changes from the prior year
However, computation of legal debt margins is not required in the MD&A. This type of information is typically included in the statistical section of the ACFR (Annual Comprehensive Financial Report), not in MD&A.
Relevant Reference:
GASB Statement No. 34 -- Basic Financial Statements and Management's Discussion and Analysis
GASB Codification Section 2200 -- MD&A Requirements
GFOA ACFR Checklist
Answer : C. computation of legal debt margins

Correct : C

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Aa discussion of the basic financial statements.

Ban overall analysis.

Ccomputation of legal debt margins.

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