ACCA AK Management Accounting (MA) Costing 2 — Questions and Answers
Question 1: A company uses activity-based costing (ABC). Which of the following is the best cost driver for the quality inspection activity?
- Number of machine hours
- Number of inspections performed (Correct answer)
- Number of units sold
- Square metres of warehouse space
Correct answer: Number of inspections performed
Under ABC, cost drivers should have a cause-and-effect relationship with the activity. The number of inspections performed directly drives quality inspection costs, making it the most appropriate cost driver.
Question 2: A product has a variable cost of £8 per unit and a selling price of £12 per unit. Fixed costs are £20,000 per month. What is the breakeven point in units?
- 2,500 units
- 5,000 units (Correct answer)
- 1,667 units
- 4,000 units
Correct answer: 5,000 units
Contribution per unit = £12 − £8 = £4. Breakeven point = Fixed costs ÷ Contribution per unit = £20,000 ÷ £4 = 5,000 units.
Question 3: Which of the following describes a step cost?
- A cost that increases in direct proportion to output
- A cost that remains fixed over a range of activity but jumps to a higher level once that range is exceeded (Correct answer)
- A cost that decreases as output increases
- A cost that fluctuates randomly with no pattern
Correct answer: A cost that remains fixed over a range of activity but jumps to a higher level once that range is exceeded
A step cost (or step-fixed cost) remains constant within a relevant range of activity but increases by a discrete amount when activity exceeds that range — for example, hiring an additional supervisor when production exceeds capacity.
Question 4: The margin of safety represents:
- The difference between total revenue and total variable costs
- The excess of budgeted or actual sales over the breakeven point (Correct answer)
- The total contribution earned from all products
- The difference between fixed costs and variable costs
Correct answer: The excess of budgeted or actual sales over the breakeven point
The margin of safety measures how far sales can fall before the organisation reaches its breakeven point. It is calculated as budgeted (or actual) sales minus breakeven sales, expressed in units, revenue, or as a percentage.
Question 5: In standard costing, what does a favourable material usage variance indicate?
- More material was used than the standard allowed
- Less material was used than the standard allowed for the actual output (Correct answer)
- Material was purchased at a price below standard
- Actual production was less than budgeted production
Correct answer: Less material was used than the standard allowed for the actual output
A favourable material usage variance means that actual quantity of material used was less than the standard quantity allowed for the actual level of output. This indicates efficient use of materials.
Question 6: A company produces three products. Product X has a contribution per unit of £5 and requires 2 machine hours. Product Y has a contribution of £9 and requires 3 machine hours. Product Z has a contribution of £4 and requires 1 machine hour. If machine hours are the limiting factor, what is the optimal production priority?
- X, Y, Z
- Y, X, Z
- Z, Y, X (Correct answer)
- Z, X, Y
Correct answer: Z, Y, X
Contribution per machine hour: X = £5/2 = £2.50, Y = £9/3 = £3.00, Z = £4/1 = £4.00. Ranking by contribution per limiting factor (highest first): Z (£4.00), Y (£3.00), X (£2.50). Produce Z first, then Y, then X to maximise profit.
ACCA AK Management Accounting (MA) Costing 2
A company uses activity-based costing (ABC).
Which of the following is the best cost driver for the quality inspection activity?