AAT L2 Elements of Costing 2

Question 1

The prime cost of a product is calculated as:

Accepted Answer

Direct materials + Direct labour + Direct expenses

Answer

Prime cost includes only direct costs: direct materials, direct labour, and any direct expenses. It excludes all indirect costs (overheads). Prime cost represents the costs directly traceable to the units produced.

Question 2

A manufacturing business produces 10,000 units. Fixed costs are £50,000 and variable costs are £3 per unit. What is the total cost?

Accepted Answer

£80,000

Answer

Total cost = Fixed costs + Total variable costs = £50,000 + (10,000 × £3) = £50,000 + £30,000 = £80,000.

Question 3

Cost centres are best described as:

Accepted Answer

Sections of the business to which costs can be charged for control purposes

Answer

A cost centre is a department, function, or area of the business to which costs are allocated for the purpose of cost control and performance measurement. Examples include the assembly department, the packaging department, or the canteen.

Question 4

Overheads are also known as:

Accepted Answer

Indirect costs

Answer

Overheads are indirect costs that cannot be directly attributed to specific units of production. They include production overheads (factory costs), administrative overheads, and selling and distribution overheads.

Question 5

If a product has a total cost of £25 and is sold with a 40% mark-up on cost, what is the selling price?

Accepted Answer

£35.00

Answer

A 40% mark-up on cost means the profit is 40% of the total cost. Profit = £25 × 40% = £10. Selling price = Cost + Profit = £25 + £10 = £35.

AAT Level 2 Practice Test

AAT Level 2 Practice Test

AAT L2 Elements of Costing 2