ACCA Management Accounting Techniques 5 — Questions and Answers
Question 1: Which of the following is NOT typically a characteristic of a responsibility centre classified as a profit centre?
- The manager controls long-term capital investment decisions (Correct answer)
- The manager controls both revenues and costs
- Performance is measured by profit generated
- Transfer pricing may affect reported profit
Correct answer: The manager controls long-term capital investment decisions
Capital investment decisions are the distinguishing feature of an investment centre, not a profit centre.
Question 2: A company uses kaizen costing. This means it focuses on:
- Continuous, incremental cost reductions during the production phase (Correct answer)
- Setting cost targets before product design begins
- Allocating overheads using activity drivers
- Eliminating non-value-added activities using process mapping
Correct answer: Continuous, incremental cost reductions during the production phase
Kaizen costing involves setting ongoing cost reduction targets throughout the production life of a product, contrasting with target costing at the design stage.
Question 3: The labor efficiency variance is calculated as:
- (Standard hours for actual output − Actual hours worked) × Standard rate (Correct answer)
- (Standard hours − Actual hours) × Actual rate
- (Actual hours worked − Budgeted hours) × Standard rate
- (Standard rate − Actual rate) × Actual hours worked
Correct answer: (Standard hours for actual output − Actual hours worked) × Standard rate
Labor efficiency variance = (Standard hours for actual output − Actual hours worked) × Standard labor rate per hour.
Question 4: Which of the following best describes a cost that is 'relevant' for a decision?
- A future incremental cost that differs between alternatives (Correct answer)
- Any cost that appears in the management accounts
- A sunk cost that has already been committed
- A fixed overhead allocated to the product
Correct answer: A future incremental cost that differs between alternatives
Relevant costs are future, incremental (differential) cash flows that change depending on which decision alternative is chosen; sunk and absorbed costs are irrelevant.
Question 5: In environmental management accounting, which approach assigns environmental costs directly to the products or processes that cause them?
- Environmental activity-based costing (Correct answer)
- Life cycle assessment
- Input-output analysis
- Full cost accounting
Correct answer: Environmental activity-based costing
Environmental ABC traces environmental costs (waste disposal, emissions) to the specific products or processes that generate them using environmental cost drivers.
Question 6: A company is evaluating a make-or-buy decision. The relevant cost to make the component internally is:
- Variable production cost plus any avoidable fixed costs (Correct answer)
- Total absorbed cost including all fixed overhead
- Variable cost plus depreciation of existing machinery
- All historical costs incurred on similar components
Correct answer: Variable production cost plus any avoidable fixed costs
Only future incremental costs that can be avoided if the component is bought externally are relevant; sunk and unavoidable fixed costs are excluded.
Question 7: When using a flexible budget for performance evaluation, the key purpose is to:
- Compare actual costs to the costs expected at the actual level of activity (Correct answer)
- Compare actual costs to the original fixed budget regardless of output
- Identify variances caused only by price differences
- Set spending limits before the period begins
Correct answer: Compare actual costs to the costs expected at the actual level of activity
A flexible budget recalculates expected costs at actual activity levels, enabling a fair like-for-like comparison with actual results.
ACCA Management Accounting Techniques 5
Which of the following is NOT typically a characteristic of a responsibility centre classified as a profit centre?