Elements of Costing Flashcards
6 cards from real AAT L2 practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Elements of Costing flashcards as text
A time-based pay system means employees are paid based on:
Answer: The number of hours they work
Under a time-based pay system, employees are paid for the hours worked, regardless of the number of units produced. The hourly rate is agreed in advance, and total pay = hours worked × rate per hour.
A manufacturing business has direct materials of £15,000, direct labour of £12,000, production overheads of £8,000, and administrative overheads of £5,000. What is the production cost?
Answer: £35,000
Production cost = Direct materials + Direct labour + Production overheads = £15,000 + £12,000 + £8,000 = £35,000. Administrative overheads are not part of production cost — they are period costs.
If fixed costs per unit decrease as output increases, this demonstrates that:
Answer: Fixed costs are being spread over more units
Total fixed costs remain constant regardless of output. However, the fixed cost per unit decreases as output increases because the same total fixed cost is divided by more units. This is known as spreading fixed costs or economies of scale.
Which of the following cost behaviours describes a royalty paid per unit of output?
Answer: Variable cost
A royalty paid per unit of output is a variable cost because the total cost changes in direct proportion to the number of units produced. If output doubles, the total royalty payment doubles.
Contribution per unit is calculated as:
Answer: Selling price per unit minus variable cost per unit
Contribution per unit = Selling price per unit - Variable cost per unit. It represents the amount each unit contributes towards covering fixed costs and then generating profit.
A business sells a product for £50. Variable costs are £30 per unit and total fixed costs are £100,000. How many units must be sold to break even?
Answer: 5,000 units
Contribution per unit = £50 - £30 = £20. Break-even point = Fixed costs / Contribution per unit = £100,000 / £20 = 5,000 units. At 5,000 units, total contribution exactly covers fixed costs, producing zero profit.