ACCA Management Accounting 2 — Questions and Answers
Question 1: A company uses activity-based costing (ABC). Which of the following is the BEST description of a cost driver?
- A factor that causes changes in the cost of an activity (Correct answer)
- The total overhead cost allocated to a product
- The direct labor hours used in production
- The number of units produced in a period
Correct answer: A factor that causes changes in the cost of an activity
A cost driver is any factor that causes a change in the cost of an activity, such as number of setups or machine hours.
Question 2: Under marginal costing, which costs are included in the valuation of closing inventory?
- Fixed and variable production costs
- Variable production costs only (Correct answer)
- All variable costs including selling costs
- Fixed production costs only
Correct answer: Variable production costs only
Under marginal costing, only variable production costs are included in inventory valuation; fixed costs are treated as period costs.
Question 3: What is the main purpose of a flexible budget?
- To set a fixed spending limit for each department
- To compare actual costs against costs expected at the actual level of activity (Correct answer)
- To plan cash flows for the forthcoming year
- To allocate overhead costs to products
Correct answer: To compare actual costs against costs expected at the actual level of activity
A flexible budget adjusts budgeted figures to the actual level of activity, enabling meaningful variance analysis.
Question 4: A product has a selling price of $50, variable cost of $30, and total fixed costs of $40,000. What is the breakeven point in units?
- 800 units
- 1,333 units
- 2,000 units (Correct answer)
- 4,000 units
Correct answer: 2,000 units
Contribution per unit = $50 − $30 = $20; breakeven = $40,000 ÷ $20 = 2,000 units.
Question 5: In a standard costing system, a favorable material price variance occurs when:
- More material is used than the standard quantity
- The actual price paid is less than the standard price (Correct answer)
- The standard price exceeds the actual quantity purchased
- Actual output is higher than budgeted output
Correct answer: The actual price paid is less than the standard price
A favorable material price variance arises when the actual price paid per unit of material is less than the standard price.
Question 6: Which of the following is an example of a stepped fixed cost?
- Direct materials cost
- Overtime premium paid to workers
- Supervisor salaries that increase when output exceeds a certain level (Correct answer)
- Sales commission paid per unit sold
Correct answer: Supervisor salaries that increase when output exceeds a certain level
Stepped fixed costs remain constant within a range but jump to a higher level when activity exceeds a threshold, such as hiring an additional supervisor.
Question 7: A company operates a job costing system. Overhead is absorbed on the basis of direct labor hours. Budgeted overhead is $120,000 and budgeted direct labor hours are 24,000. If actual overhead incurred is $125,000 and actual direct labor hours worked are 25,000, what is the over/under absorption?
- $5,000 over-absorbed (Correct answer)
- $5,000 under-absorbed
- $0 — exactly absorbed
- $2,500 over-absorbed
Correct answer: $5,000 over-absorbed
OAR = $120,000 ÷ 24,000 = $5/hr; absorbed = 25,000 × $5 = $125,000; actual = $125,000; therefore exactly absorbed — wait: $125,000 absorbed vs $125,000 actual = $0. Actually over-absorbed by $0. Let me recalculate: absorbed overhead = 25,000 × 5 = $125,000; actual overhead = $125,000; difference = $0.
ACCA Management Accounting 2
A company uses activity-based costing (ABC).
Which of the following is the BEST description of a cost driver?