AAT L3 Management Accounting: Costing 2 — Questions and Answers
Question 1: Which of the following is a direct cost?
- Factory rent
- Production supervisor's salary
- Raw materials used in production (Correct answer)
- Machine maintenance contract
Correct answer: Raw materials used in production
Direct costs are specifically traceable to a cost unit; raw materials used in production are a direct cost as they can be directly attributed to the product being manufactured.
Question 2: A cost centre is best defined as:
- A centre responsible for generating revenue
- A centre where costs are incurred and collected for control and management purposes (Correct answer)
- A centre measured on profit and return on investment
- A centre that sets prices for products
Correct answer: A centre where costs are incurred and collected for control and management purposes
A cost centre is a department, section, or function where costs are accumulated; managers are held accountable only for the costs under their control.
Question 3: Which of the following is a fixed cost?
- Direct materials
- Commission paid to sales staff
- Factory rental payments (Correct answer)
- Packing materials
Correct answer: Factory rental payments
Factory rental is a fixed cost — it does not change with the level of production output within the relevant range. Variable costs (materials, commission, packing) increase with output.
Question 4: Step-fixed (stepped) costs are those that:
- Remain constant at all levels of output
- Increase proportionally with each unit of output
- Remain fixed within a range of activity but jump to a higher level beyond that range (Correct answer)
- Decrease as output increases
Correct answer: Remain fixed within a range of activity but jump to a higher level beyond that range
Step-fixed costs are constant within a range of activity but increase in steps when output exceeds a threshold — for example, supervision costs when an additional supervisor is required at higher production volumes.
Question 5: If selling price is £20 per unit, variable cost is £12 per unit, and fixed costs are £40,000, the breakeven point in units is:
- 2,000 units
- 3,333 units
- 5,000 units (Correct answer)
- 8,000 units
Correct answer: 5,000 units
Contribution per unit = £20 − £12 = £8. Breakeven = £40,000 / £8 = 5,000 units.
Question 6: Apportionment of overhead costs means:
- Directly tracing a cost to a cost centre
- Sharing overhead costs across cost centres using an appropriate basis when they cannot be directly attributed (Correct answer)
- Charging overheads to products based on a rate
- Writing off overheads as a period cost
Correct answer: Sharing overhead costs across cost centres using an appropriate basis when they cannot be directly attributed
Overhead apportionment shares costs (such as rent, heating, or depreciation) between cost centres using a fair basis (e.g., floor area for rent, number of employees for canteen costs) when direct attribution is not possible.
AAT L3 Management Accounting: Costing 2
Which of the following is a direct cost?